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Bad debts and income tax

No trading deduction is available in respect of any debt except where the debt is:

1. Ìý

   •ÌýÌýÌýÌý bad

2. Ìý

   •ÌýÌýÌýÌý estimated to be bad, or

3. Ìý

   •ÌýÌýÌýÌý released by the creditor wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement¹

A debt is estimated to be bad if the debtor is bankrupt or insolvent. However this does not apply to the extent that an amount can reasonably be expected to be received on the debt². A deduction for bad or doubtful debts is to be made against trading profits in the year in which the debt becomes bad or doubtful. For release of debts, see B2.206.

These provisions do not apply where profits are calculated on the cash basis³ (see B2.111 and B2.112).

The following have been held not to be bad debts:

1. Ìý

   •ÌýÌýÌýÌý a sum which a managing director had overdrawn on his commission account⁴

2. Ìý

   •