Lee Sharpe looks at provisions for bad debts and when they should be allowed for tax purposes.
There is an old saying that goes broadly: ‘When you owe the bank £1,000 and you cannot pay, you’ve got a problem; when you owe the bank £1 million and cannot pay, the bank has a problem’.
This article looks at the approach to bad debts and particularly doubtful debts, as is commonly termed ‘provision for bad and doubtful debts’. In particular, why HMRC might disagree with the timing of a corresponding tax claim.
Provision for bad and doubtful debts
Accounting purists may be grinding their teeth at this common description because, strictly:
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one does not ‘provide for’ the reduction of an asset, such as a debt to one’s business (the correct description is ‘impairment’
