ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with current practice. Change 14: Post-cessation expenditure: meaning of qualifying event: definition of statutory insolvency arrangement: section 98
This change replaces the term “relevant arrangement or compromise (within the meaning of section 74 of ICTA)” in section 109A(4) of ICTA with the term “statutory insolvency arrangement”, which is defined in section 259 of ITTOIA.
Before the enactment of ITTOIA, a trading deduction for bad and doubtful debts was denied, for the purposes of both income tax and corporation tax, by section 74(1)(j) of ICTA, except in the circumstances covered in paragraph (j)(i) to (iii). Section 74(1)(j)(ii) of ICTA then allowed a deduction for a debt or part of a debt released as part of a relevant arrangement or compromise. Section 74(2) of ICTA defined this term.
Section 35 of ITTOIA introduced an income tax provision for bad and doubtful debts that uses a new term “statutory insolvency arrangement”, defined in section 259 of ITTOIA. But the provision in section 109A of ICTA dealing with relief for post-cessation expenditure was not amended to incorporate the new term. This change corrects the position.
The effect of the change is, broadly, to allow claims for unpaid debts released under arrangements or compromises of a kind corresponding to those covered within the meaning of the former definition, but taking effect under or by virtue of the law of a country or territory outside the United Kingdom. This broadens the scope for taxpayers to make claims and is therefore taxpayer-favourable.