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CTA09/S367

Subsequent recovery

If an impairment debit has been restricted by CTA09/S365, and there is a subsequent recovery, the creditor can claw back some or all of the previous reduction.

This rule, in CTA09/S367, applies where, in any group accounting period, the amount of debits for impairment brought in for the period are less than total amount of credits from loan relationships held by a consortium member or its group members.

CTA09/S365(2) ensures that where impairment debits have been brought into account, recoveries are taxable as a credit. However, where there has been a previous restriction of the amount of impairment debit  under section 365, this taxable recovery is reduced or eliminated by the amount of that earlier restriction.

»Ê¹ÚÌåÓýapp amount of the reduction of each credit is calculated in three steps.

Step 1 is to find the total amount of debits that have been reduced under s365 in previous group accounting periods

Step 2 is to deduct from the  figure found at Step 1, the total amount by which credits have previously been reduced.

Step 3 is to apportion the amount found at Step 2 between the credits.

Example

In the example at CFM35670, WD Ltd wrote off £100,000 of a £200,000 loan to a consortium company. »Ê¹ÚÌåÓýapp impairment debit was restricted by £32,000 because of a group relief claim. In the following period WD Ltd regarded £50,000 more of the loan as recoverable and no group member has any new impairment. »Ê¹ÚÌåÓýapp taxable recovery credits are reduced by £32,000, leaving £18,000 to be brought in as a taxable credit.

Where more than one member has a taxable recovery credit, each credit is reduced in proportion.