It is an unfortunate fact that baddebts are a feature
of economic recessions.
However, one positive point is that you can reclaim the
VAT element of any unpaid sales invoices provided the output
VAT has already been included on a VAT return – as
long as certain conditions are met:
The debt must be at least six months overdue for payment.
In the case of an invoice raised on 30-day payment terms,
the debt will qualify for relief seven months after the date
of the invoice.
- The debt must be written off in your accounting records,
ie the customer’s ledger is credited and a bad debt
account created.
- The debt has not been sold to a factoring company.
- If all the conditions are met, you can reclaim the VAT element
of the debt within Box 4 of your next return.
Another option is to use HMRC’s cash accounting scheme
where you do not account for VAT until you receive payment
from your customer. This gives automatic bad debt relief – contact
us to see if you are eligible to use the scheme.
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