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VAT - bad debt relief

The conditions and requirements of claiming VAT relief on bad debts.

VAT Bad debt relief allows businesses that have made supplies on which they have accounted for and paid VAT but for which they have not received payment to claim a refund of the VAT. We explain the situations where the relief applies. If your business is in the London area we, at Numera can provide any further information you require on VAT matters.

It is quite possible within the VAT system for a business to be in the position of having to pay over VAT to HMRC while not having received payment from their customer.

Bad debt relief allows businesses, that have made supplies on which they have accounted for and paid VAT but for which they have not received payment, to claim a refund of the VAT by reference to the outstanding amount.

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

If your business is in the London area we at Numera would be pleased to help with further advice on VAT bad debt relief.

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Company details

020 7794 5757

Numera, 4th Floor Charles House, 108-110 Finchley Road, London NW3 5JJ

Numera is a trading name of Numera Partners LLP | Company Registration No. OC365787 | Place of Registration: England & Wales | Registered to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales.

About us

Numera is a newly established forward-thinking firm of chartered accountants, with over 25 years in experience of audit, accountancy, taxation and business advisory services.

We work with clients in a large variety of industries and sectors; from sole traders to multi-million pound turnover organisations. We aim to create and maintain a close relationship with our clients. By being so involved, we are able to identify opportunities for our clients as well as possible risks that our clients may be faced with.

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