Annex 1: Minor changes in the law made by the Act: Change 65: Statutory insolvency arrangement - Scotland: section 259
This change adapts the definition of “statutory insolvency arrangements” in section 259 to Scotland.
Section 74(1)(j) of ICTA prohibits the deduction in computing the profits of a trade, profession or vocation of any debt other than:
“(i)a bad debt(ii)a debt or part of a debt release by a creditor wholly and exclusively for the purposes of his trade, profession or vocation as part of a relevant arrangement or compromise; and(iii)a doubtful debt to the extent estimated to be bad.”
Section 74(1)(j) of ICTA is rewritten in section 35. Section 35 replaces the term “relevant arrangement or compromise” with “statutory insolvency arrangement”.
Section 74(2)(a) of ICTA defines “relevant arrangement or compromise” as a voluntary arrangement under the Insolvency Act 1986 (covering individual voluntary arrangements in England and Wales) or the Insolvency (Northern Ireland) Order 1989 (covering individual voluntary arrangements in Northern Ireland).
The omission of any reference to Scottish insolvency legislation was an oversight when section 74(2) of ICTA was inserted by section 144(2) of FA 1994. The nearest equivalent in Scotland to the Insolvency Act 1986 and the Insolvency (Northern Ireland) Order 1989 is the Bankruptcy (Scotland) Act 1985 which covers voluntary arrangements in Scotland supervised by the courts or by independent practitioners. So section 259 defines “statutory insolvency arrangement” by reference to the Bankruptcy (Scotland) Act 1985 as well as by reference to the corresponding legislation in England and Wales and in Northern Ireland cited in section 74(2) of ICTA.
This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.