188体育

Effect of releases

This guidance applies to periods of account beginning before 1 January 2005

Where

• all or part of a loan was released, and
• the debtor company brought in the release as a taxable credit

then the equivalent amount written down by the creditor was not brought into account for the purposes of calculating the 鈥榬elevant net debit鈥�.

The credit was taxable unless the debtor company entered into insolvency proceedings (FA96/SCH9/PARA5(7)). This provision had effect in relation to any release made on or after 10 December 2003.

The debit for the release was provided for under the authorised arrangements for bad debt - FA96/SCH9/PARA5(1)(c).

Example

In CFM81350, in Year 1 Rewdon Manufacturing Ltd made a loan of 拢100,000 to Porwin Ltd. If, instead of writing it down to 拢40,000, Rewdon had formally released 拢60,000 of the debt, then

• Porwin Ltd would have brought a credit of 拢60,000 into its accounts
• Rewdon Manufacturing Ltd would nave obtained a debit of 拢60,000, and
• there would be no 鈥榬elevant net debit鈥�.

This was because FA96/SCH9/PARA5A (15) excluded an amount equal to the amount credited (拢60,000) from the computations of the relevant net debit. In other words, the debit for the amount released couldn鈥檛 be restricted.