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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 ‘relevant net debit�.

»Ê¹ÚÌåÓýapp 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.

»Ê¹ÚÌåÓýapp 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 £100,000 to Porwin Ltd. If, instead of writing it down to £40,000, Rewdon had formally released £60,000 of the debt, then

• Porwin Ltd would have brought a credit of £60,000 into its accounts
• Rewdon Manufacturing Ltd would nave obtained a debit of £60,000, and
• there would be no ‘relevant net debitâ€�.

This was because FA96/SCH9/PARA5A (15) excluded an amount equal to the amount credited (£60,000) from the computations of the relevant net debit. In other words, the debit for the amount released couldn’t be restricted.