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No Income Tax Relief For Son’s Loans To Father’s Company Claimed As Irrecoverable

By Mark McLaughlin, April 2017
The appellant sole trader was unable to prove satisfactorily the quantum of bad debts claimed to be irrecoverable, which were owed by his father’s company, and no relief would have been available as the underlying loans were capital in nature. 

The appellant operated skip hire businesses as a sole trader. He claimed relief by seeking to correct his tax returns for 2008/09 to 2010/11 inclusive (pursuant to TMA 1970, Sch 1AB) in respect of irrecoverable debts in connection with loans made to a skip hire company (MWL) owned by his father. 

HM Revenue and Customs (HMRC) rejected the corrections on the basis that the irrecoverable debts were not allowable for income tax relief because the loans: (1) were capital investments (within ITTOIA 2005, s 33); and (2) were not wholly and exclusively laid out for the purposes of the trade (within ITTOIA 2005, s 34). 

The appellant appealed. His
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