Helpful debt

Mr and Mrs E owned the taxpayer property management company which leased business premises to M a firm owned by Mr and Mrs E.

M fell into financial difficulties in June 2003. It went in receivership six month later owing rent to the taxpayer.

The property management company claimed bad debt relief under TA 1988 s 74. HMRC refused on the basis the taxpayer had allowed rent to accrue during the period M had been in financial difficulty and then had written off the arrears for motives unrelated to the business.

The First-tier Tribunal said the taxpayer’s purpose in not collecting the debt had to be for its own business purposes for s 74 relief to be allowed.

In this instance the directors of M had allowed the rent payments to fall behind to give the firm time to recover in the hope...