VAT
VAT
- Bad Debt Relief
It
is quite possible within the VAT system for a business to
be in the position of having to pay over VAT to Customs &
Excise 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
- 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 Customs
- any
payment received for the supply
- details
of entries in the ‘refunds for bad debts account’.
Repayment
of Input Tax by Purchaser
Under
earlier regulations, a business was required to write to their
debtor customer within seven days advising them that a claim
for VAT bad debt relief had been made. This is no longer required.
As a quid pro quo for this, 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. Previously, input tax only needed
to be repaid following receipt of a notice from the supplier
who was claiming bad debt relief. This now 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.
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For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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