What is ‘bad debt relief’?
Sometimes within the UK VAT system situations can arise wherein a business is required to pay VAT to HMRC before they have been paid by their customer. This can wreak havoc on a business’s cash flow.
Fortunately, ‘bad debt relief’ exists to help businesses faced with this type of situation. Where the business has accounted for the output VAT and paid it to HMRC, but not yet received payment from the customer, it can claim a reimbursement for the outstanding amount.
Am I eligible to claim ‘bad debt relief’?
Of course, certain conditions have to be met in order to receive bad debt relief. Some of these conditions are listed below:
- Commodities or services have actually been supplied.
- The output tax for those commodities or services in question has been accounted for in your books and records.
- Payment of the VAT has been made to HMRC.
- 6 months has passed since the later of the date of supply of the goods or services and the due date for payment.
- Ensure that the outstanding amount has been written off in the accounting records appropriately.
If your business meets these requirements, there is a good chance that you are eligible to make a claim.
How can I claim ‘bad debt relief’?
Making a claim for bad debt relief is relatively straightforward, and can be made on your current VAT return.
Things to remember
You should be aware that any business wishing to make a claim must keep the relevant records for at least 4 years. It is also important to ensure you claim it as a bad debt and record it as such within your accounting records rather than issue a credit note.
After a claim has been made, the business should ensure that it keeps a track of any of these debtors if they pay up as the output tax would then need to be paid over accordingly.
You contact us for advice on claiming bad debt relief
