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Questionable credit
Our sole trader client borrowed approximately £150,000 from a bank to fund the working capital requirements of his business.
Questionable credit
Our sole trader client borrowed approximately £150,000 from a bank to fund the working capital requirements of his business.
Some time later, when the capital outstanding on the loan was £100,000, severe financial hardship meant that our client was no longer able to make the monthly loan repayments. Eventually, after protracted negotiation, the bank agreed to accept £14,000 in full and final settlement of the loan. In preparing the business accounts I have credited £86,000 to the profit and loss account as an exceptional item.
My query relates to the tax treatment of the £86,000 credited to the profit and loss account. Is the credit chargeable to tax? The only relevant case I have come across is the 1891 case, Arizona Copper Co v Smiles 3 TC 149 from which it could be deduced that the credit is not taxable at all.
Readers' thoughts would be most gratefully received.
(Query T16,535)
