Income Tax (Trading and Other Income) Act 2005 section 35

Bad and doubtful debts

Section 35 sets out the rules governing when a deduction can be claimed for debts owed to a trader, limiting relief to debts that are bad, estimated to be bad, or released as part of a formal insolvency arrangement.

• No deduction is allowed for a trade debt unless the debt is genuinely bad (irrecoverable) or estimated to be bad (doubtful)
• A debt released wholly and exclusively for trade purposes under a statutory insolvency arrangement also qualifies for deduction
• Where the debtor is bankrupt or insolvent, the full debt is treated as estimated to be bad, except to the extent that some amount may reasonably be expected to be recovered
• This provision consolidates the former relief for bad and doubtful debts and the separate relief for debts proved irrecoverable after a trade is deemed to have ceased