bad debt relief

When you make a taxable supply to a customer, you become liable to account for VAT on it and will often have paid the VAT over to HMRC before you have actually been paid by the customer.

If you do not get paid by your customer after six months, you can claim for Bad Debt Relief. You do this by adding the amount you wish to claim in the Input Tax box on your VAT return. You don’t need to notify the VAT man separately that you are making this claim. If the debtor subsequently pays the debt, you would need to adjust the next VAT return to pay back the proportionate amount of the original claim to HMRC by adding the amount to box 1 on your VAT return.

We would suggest that, after chasing customers for money, you include any doubtful ones on a list, showing the appropriate dates so that, after the six months has passed, you can consider whether a claim could be made.

Review your older debts as you have up to three years and six months after the original invoice date to make a claim.