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Can tax relief be claimed on a loan written off due to the debtor going into liquidation?

Can tax relief be claimed on a loan written off...

Company A loaned £10,000 to Company B, which has now gone into liquidation with no funds available for creditors.

The companies are not connected in any way.

Firstly how should the transaction be shown in the accounts.  As an exceptional item on the P & L account?

Can the resulting loss be carried back to the previous year and a refund of corporation tax claimed?

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12th Dec 2011 22:44

Corporate Loan relationship write-off, if genuinely no connection and genuinely irrecoverable, then Company A is entitled to tax relief on the amount which it writes off to P&L (although you'll have to ask an accounting expert about the entries, I'll be interested to learn) and B will be taxable on the benefit it derives, although this will probably serve to offset any losses it probably has already suffered.

It is probably NOT, in A's hands, a trade transaction and so it will be able to carried back but only against non-trade surplus in the year before.  Not a lot of comfort, I'd guess.

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