Timing of release of debt under liquidation agreement

The taxpayers were the directors of a company which provided car finance to the motor trade. In 2012 it was placed into creditors’ voluntary liquidation. In October 2013 the taxpayers agreed with the liquidator that they would pay £100 000 by instalments over two years to settle their debt to the company of about £1m. Failure to make any of the instalments would result in the whole of the debt becoming due and payable immediately.

A dispute arose as to when the debt was written off. HMRC said this happened in 2013-14 because the agreement constituted the release of £900 000 of the debt and triggered a charge to tax under ITTOIA 2005 s 415. The taxpayers accepted there was a taxable release but said because the release was conditional on paying the instalments it would only take place when the condition was satisfied which would...