VAT - Bad Debt Relief

The Conditions for Relief

In order to make a claim a business must satisfy the following conditions:

• goods and services have been supplied and the VAT in question has been accounted for and paid
• six months has elapsed since the later of the date of supply and the due date for consideration, whichever is the later
• all or part of the outstanding amount must have been written off in the accounting records as a bad debt (in the ‘refunds for bad debts account’).

Making the Claim

A claim is made by entering the appropriate amount in Box 4 of the VAT return for the period in which entitlement to the claim arises (or any permissible later period).

Records

Businesses making bad debt relief claims must keep records for four years from the date of the claim to show:

• the time and nature of supply, purchaser and consideration - normally a VAT invoice will show this
• the amount of VAT and the accounting period it was paid to HMRC
• any payment received for the supply
• details of entries in the ‘refunds for bad debts account’.

Repayment of Input Tax by Purchaser

Where a customer has not paid a supplier within six months of the date of the supply or, if later, the date payment is due, VAT previously claimed as input tax, must be repaid. This puts a burden on all VAT registered traders to monitor their transactions to anticipate whether they need to reverse any input tax recovered on goods received from suppliers.

How we can help

We would be pleased to help with further advice in this area. Please contact us.