Finance Act 1996

Bad debt etc. E+W+S+N.I.

5 (1) In determining the credits and debits to be brought into account in accordance with an accruals basis of accounting, a departure from the assumption in the case of the creditor relationships of a company that every amount payable under those relationships will be paid in full as it becomes due shall be allowed (subject to paragraph 6 below) to the extent only that— E+W+S+N.I.

(a) a debt is a bad debt;

(b) a doubtful debt is estimated to be bad; or

(c) a liability to pay any amount is released.

[F1 (1A) Such a departure shall be made only where the first and second conditions (set out in sub-paragraphs (2) and (2A) below) are satisfied.]

(2) [F2 The first condition is that] the accounting arrangements allowing the departure also require appropriate adjustments, in the form of credits, to be made if the whole or any part of an amount taken or estimated to represent an amount of bad debt is paid or otherwise ceases to be an amount in respect of which such a departure is allowed.

[F3 (2A) The second condition is that, in determining the credits and debits to be brought into account in respect of exchange gains and losses, the accounting arrangements allowing the departure require a debt—

(a) to be left out of account, to the extent that such a departure is allowed; and

(b) to be taken into account again, to the extent that it is represented by credits brought into account under sub-paragraph (2) above.]

(3) Where—

(a) a liability to pay any amount under a debtor relationship of a company is released, and

(b) the release takes place in an accounting period for which an authorised accruals basis of accounting is used as respects that relationship,

no credit in respect of the release shall be required to be brought into account in the case of that company if the release is part of a relevant arrangement or compromise (within the meaning given by section 74(2) of the Taxes Act 1988) or the relationship is one as respects which section 87 of this Act requires the use of an authorised accruals basis of accounting.

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Amendments (Textual)

F1 Sch. 9 para. 5(1A) inserted (24.7.2002 with effect as mentioned in s. 79(3) of the amending Act) by Finance Act 2002 (c. 23), s. 79(2), Sch. 23 Pt. 1 para. 8(2) (with Sch. 23 Pt. 3 para. 25)

F2 Words in Sch. 9 para. 5(2) substituted (24.7.2002 with effect as mentioned in s. 79(3) of the amending Act) by Finance Act 2002 (c. 23), s. 79(2), Sch. 23 Pt. 1 para. 8(3) (with Sch. 23 Pt. 3 para. 25)

F3 Sch. 9 para. 5(2A) inserted (24.7.2002 with effect as mentioned in s. 79(3) of the amending Act) by Finance Act 2002 (c. 23), s. 79(2), Sch. 23 Pt. 1 para. 8(4) (with Sch. 23 Pt. 3 para. 25)