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Tuesday, 20 October 2009

Debts Written off in Company Voluntary Arrangements Not Subject to Tax

When a company proposes a CVA to its creditors the norm is for some of the debt to be compounded (or reduced). Typically the CVA may pay 30p in £1 over 5 years or similar.

What happens to the 70p? This is written off, usually on completion of the CVA scheme. Of course this sharply improves the balance sheet and working capital of the company.

Debts written off in Company Voluntary Arrangements are not subject to tax. Under s144 Finance Act 1994 any debts that are written off as a result of a properly agreed company voluntary arrangement are not subject to taxation.

This exemption also applies to a Scheme of Arrangement under s425 of the Companies Act 1985.

Please see this page on our website for further information and the Act details

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