A trader that receives goods or services and thereby has a legal debt to pay for them will have had a deduction for the expense of the goods or services in the profit and loss account. If that debt is subsequently released (other than as part of a statutory insolvency arrangement) an amount will be credited to profit and loss account which is then taxable as a trading receipt1. A statutory insolvency agreement is defined in ITTOIA 2005, s 259 and CTA 2009, s 1319.
The taxable amount is treated as arising on the date of the release for income tax purposes2 and for corporation tax purposes it is treated as arising in the accounting period in which the release is effected3.
HMRC states that the release of the debt must involve a contractual agreement. Where the release is under seal
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