What is a statutory insolvency arrangement under section 259 of ITTOIA 2005?

Under section 259, a statutory insolvency arrangement includes a voluntary arrangement under the Insolvency Act 1986, the Insolvency (Northern Ireland) Order 1989, or the Bankruptcy (Scotland) Act 2016, a compromise or arrangement under Part 26 or Part 26A of the Companies Act 2006, or any equivalent arrangement under the law of a country outside the United Kingdom.

Does section 259 cover overseas insolvency arrangements?

Yes. Section 259 includes a catch-all category for equivalent foreign procedures. If a business enters into an arrangement or compromise under the law of a jurisdiction outside the United Kingdom that corresponds to a qualifying UK voluntary arrangement or Companies Act scheme, it is treated as a statutory insolvency arrangement for income tax purposes.

Why does it matter whether a debt release falls within a statutory insolvency arrangement?

The classification matters because debts released under a statutory insolvency arrangement are subject to specific tax rules that differ from the general rules on informal debt releases. This distinction can affect the amount, if any, that must be brought into account as trading income when a trader's debt is written off or reduced.

What is an example of a statutory insolvency arrangement in practice?

A sole trader who enters into an individual voluntary arrangement (IVA) under the Insolvency Act 1986, agreeing to repay 40p in the pound with the remaining 60% written off, falls within the definition. The released balance is treated under the specific statutory insolvency arrangement rules rather than the general debt release provisions.

Income Tax (Trading and Other Income) Act 2005 section 259

Meaning of "statutory insolvency arrangement"

Section 259 defines the term "statutory insolvency arrangement" as used in the rules on deductions from trading income, covering formal insolvency processes under UK legislation and equivalent arrangements under the laws of other countries.

A voluntary arrangement under the Insolvency Act 1986, the Insolvency (Northern Ireland) Order 1989, or Schedule 4 to the Bankruptcy (Scotland) Act 2016 counts as a statutory insolvency arrangement
A compromise or arrangement under Part 26 or Part 26A of the Companies Act 2006 also qualifies
Any arrangement or compromise under the law of a country or territory outside the United Kingdom that corresponds to either of the above UK processes is included
The definition therefore captures both domestic and overseas insolvency processes, provided the overseas process is equivalent to one of the specified UK procedures

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member