Company submitted group VAT return that incorporated substantial net claims for the two subsidiaries in addition to its own net output liability. The amounts 'due' to the subs were never paid and for years sat as a creditor on the company's B/S. A couple of years ago the subs were wound up under voluntary liquidation. Those companies have been dissolved and the liquidator's files long closed. There were sufficient funds etc to meet liquidator's fees so I can only guess that he did not seek recovery of the amounts due from the parent on the basis that there would be no point in claiming for something that would only have been passed straight back to the parent. The question is whether the credit to the P&L, on 'release' of the debt is taxable.
My understanding is that although the amounts involved represent a debt, it is not a debt arising from the lending of money, and is not brought in as a deemed loan relationship. At first sight, it would therefore seem that the credit should be taxable as a sundry trading receipt. However, given that had the parent paid over the sums due to the subs, the money would have come straight back as proceeds on winding-up. Is there therefore an argument that we can treat the write-off as final additional consideration for the disposal of the subs shares? If not, is there some other argument, or authority, whereby the credit would not be taxable?
