BIM42745 - Specific deductions: bad & doubtful debts: business ceased

Where a deduction has been allowed for bad or doubtful debts and the business is discontinued (or treated for tax purposes as discontinued), the following rules will apply:

Debts not transferred

Debts recovered after the discontinuance, to the extent to which deductions have been allowed for such debts under ICTA88/S74 (j), are chargeable as post- cessation receipts under ICTA88/S103, (see BIM80500 onwards).

Rights to debts transferred

1. Where the business is transferred as a going concern and trade debts receivable are taken over by the new proprietor, losses arising from those debts and recoveries in respect of debts taken over as bad or doubtful are to be brought into account in computing the profits of the successor (see BIM80510, ICTA88/S89 and ICTA88/S106, which override the decision in Reynolds and Gibson v Crompton [1952] 33TC288).
2. Except as in (a) above, where the right to any debt is transferred for value, the amount of the consideration (or in the case of a transfer not at arm's length, the arm's length value) is chargeable under ICTA88/S103, to the extent to which a deduction has been allowed for the debt under ICTA88/S74 (j), (see BIM80530 in this connection).

Debts released in voluntary arrangements on or after 30 November 1993

However, by virtue of FA94/S144 the provisions of ICTA88/S103 (4) will not apply where any part of a debt is released on or after 30 November 1993 as part of a relevant arrangement or compromise. ’Relevant arrangement or compromise' has the same meaning as in ICTA88/S74 (2) (see BIM42701).