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Further examples on limit of impairment debits

Example 1

FD Ltd is a consortium company. It is owned

• 40% by RT plc, the holding company of a large group
• 40% by WD Ltd, a subsidiary of KX plc
• 20% by MC Ltd, a singleton company.

WD Ltd makes a loan of 拢200,000 to FD Ltd. FD Ltd can鈥檛 repay so in Year 1, WD writes off 拢100,000 as impaired. In the same year, FD Ltd surrenders losses of 拢80,000: 拢32,000 to RT plc, 拢32,000 to KX plc and 拢16,000 to MC Ltd.

WD Ltd (and group)

The net consortium debits are 拢100,000 - the amount of the debit for impairment. The group relief claim for this group鈥檚 accounting period is 拢32,000. This is allowed as claimed.

CTA09/S365 restricts the overall debit for impairment by the amount of the group relief claim, 拢32,000, to 拢68,000. The amount of the restriction is carried forward, where it can be used to frank any subsequent impairment reductions by this group to the extent they exceed relevant net debits for the subsequent period.

Example 2

The facts are the same except that both WD Ltd and MC Ltd have made loans to the consortium company. The total impaired debts written off in the period (拢100,000) were brought in by

• WD Ltd 拢60,000
• MC Ltd 拢40,000.

WD Ltd (and group)

Net consortium debit 拢60,000.

Group relief claim from consortium company 拢32,000.

Group relief allowed as claimed. Impairment debits of 拢60,000 - 拢32,000 = 拢28,000 are allowed.

MC Ltd

Net consortium net debit 拢40,000.

Group relief claim from consortium company 拢16,000.

Group relief allowed as claimed. Debits for impairment of 拢40,000 - 拢16,000 = 拢24,000 are allowed.

Example 3

OP Ltd is a consortium company, owned 50% by JL plc and 50% by BV plc. In Year 1,

JL plc lends 拢30,000 to OP Ltd, and writes down 拢30,000.

TR Ltd, a subsidiary of JL plc, lends 拢70,000 to OP Ltd, and, in the same year, writes down 拢70,000. In that year OP Ltd surrenders losses of 拢80,000, claimed 拢40,000 by BV plc, 拢20,000 by JL plc and 拢20,000 by GF Ltd, another subsidiary of JL plc.

JL plc and group

Net consortium debit 拢100,000 (拢30,000 + 拢70,000).

Total group relief claims 拢40,000 (拢20,000 + 拢20,000).

The total debits for impairment, 拢100,000, is restricted by the total amount of group relief claimed by the JL group, 拢40,000, to 拢60,000. The restriction is apportioned between the two group companies:

JL plc鈥檚 claim is reduced by (拢40,000 x 拢30,000) / 拢100,000 = 拢12,000. Debit allowed 拢18,000.

TR Ltd鈥檚 claim is reduced by (拢40,000 x 拢70,000) / 拢100,000 = 拢28,000. Debit allowed 拢42,000.