Taxes Consolidation Act 1997 Schedule 17A paragraph 3

Transitional arrangements (bad debts)

Paragraph 3 provides transitional relief for bad debt provisions when a company moves to relevant accounting standards, ensuring that no deductibility is lost where the opening provision under the new standards exceeds the company's current or former specific provision.

• Under traditional tax rules, only specific bad debt provisions (amounts estimated as bad on identified debtors) were tax deductible; general provisions were not deductible.
• When a company transitions to relevant accounting standards, its opening bad debts provision under those standards is compared with the higher of its current bad debts provision and its former specific bad debts provision.
• If the opening provision exceeds the higher of those two amounts, the excess is treated as a deductible trading expense for the period, reduced by any amounts already claimed under this relief in earlier periods.
• A debt taken into account under this transitional relief cannot also be taken into account under the separate transitional rules for financial instruments in paragraph 4.