Commentary on Sections Overview Overview Section 55: Bad debts
228.This section is based on the rule restricting relief for some debts in section 88D of ICTA. It also rewrites the relief in section 89 of ICTA for debts proved irrecoverable after a trade is treated as having ceased. See Change 8 in Annex 1. The corresponding rule for income tax is in section 35 of ITTOIA.
229.Subsection (2)(a) refers to a deduction “by way of impairment loss”. That expression is not defined for the purpose of this section. But section 476(1) defines “impairment loss” for the purposes of the loan relationships legislation as “a debit in respect of the impairment of a financial asset”. “Impairment” includes “uncollectability”.
230.Subsection (2)(b) deals with debts released as part of a “statutory insolvency arrangement”, which is defined in section 834(1) of ICTA.
231.Subsection (3) provides a definition that clarifies the scope of the section. All money debts (see section 303) arising in a trade that produce an impairment loss are within the loan relationships rules (see section 479). Even if a money trade debt is released as part of a statutory insolvency arrangement any loss on the debt is within the extended meaning of “impairment” in section 476(1).
232.There is a corresponding rule for income from holding an office in section 970.