VAT - bad debt relief
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 Wantage, Oxfordshire area we, at Aspen Waite South 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).
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 Wantage, Oxfordshire area we at Aspen Waite South would be pleased to help with further advice on VAT bad debt relief.
Got a question?
Why not fill out our quick contact form below and a member of the team will respond shortly.
Receive our FREE monthly eNEWS, keeping you up to date with the latest news.
Registration on our website is quick and simple. On registration you will benefit from:
- Our FREE monthly eNEWS email newsletter which will keep you up to date with the latest news (this service is optional)
- On registration we'll email FREE resources to you with our compliments.
You only have to register once. You will be given a username and password that you can use at any time to log back into our website.
The latest topical new story.
Rising energy costs
A review of the issues.