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Bad debts usually arise where goods or services have been provided to a customer, for which payment has not been received within a reasonable or specified time period, or for which the customer is unable to pay. It is necessary to determine the quantum of relief that can be claimed for bad debts when calculating the profits of a trade.

Most trading bad debts are money debts which, for companies, fall under the rules for loan relationships as ‘relevant non-lending relationships’. Broadly, a money debt is one falling to be settled by the payment of money or the issue or transfer of shares. See the Corporate debt ― overview guidance note for more information.

Debts that fall within either the derivative contracts or the intangible fixed assets regimes are also excluded from the rules covered in this guidance. See the Derivative contracts of Corporate Tax guidance and What is an intangible fixed asset? guidance notes for information on these topics.

The bad debt rules do not apply to money and non-money debts for sole traders and partnerships