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VAT and Bad Debt Relief


The VAT People - Expert Author

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9th May 2013

The updated notice on Insolvency will perhaps prompt some questions regarding Bad Debt Relief amongst you and your clients. But do you know the rules surrounding the relief, and what periods may be available?

Bad Debt Relief ("BDR") has existed in the VAT legislation in various ways, and this has led to an often complex analysis being required to ensure the relief is being applied correctly. The current rules are relatively simple, but as always the four year cap applies to VAT claims , so careful consideration of when to claim is required. However, the period from 1 April 1989 to 30 April 1997 also remains open for claims. The good news is that you don't have to wait until the purchaser has begun insolvency proceedings to look to claim the relief.

As long as:

  • You have accounted for the VAT to HMRC
  • you have written off the bad debt in your day-to-day accounts and transferred it to a separate bad debt account
  • the value of the supply must not be more than the ordinary selling price
  • the debt has not been paid, sold or factored under a valid legal assignment
  • The debt must have remained unpaid for a period of at least six months after the date on which payment was due and the date of supply*
  • If the goods were supplied before 19 March 1997, ownership must have passed to your customer, or through them to a third party
  • For supplies made to a VAT registered customer between 26 November 1996 and 30 April 1997 you must send a notice to them, of which you must retain a copy.

About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.

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Article Published/Sorted/Amended on Scopulus 2013-05-20 09:10:11 in Tax Articles

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