VAT - bad debt relief

This factsheet explains the situations where the VAT bad debt relief applies.

Nottingham: 0115 9621590 - Newark: 01636 702100

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 Nottingham and Newark area we, at Hobsons 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).

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 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 Nottingham and Newark area we at Hobsons would be pleased to help with further advice on VAT bad debt relief.

About Hobsons

Hobsons was established in 1927 and today, we continue to build on our enviable reputation for providing excellent advice and first class service to our business and personal clients alike. We have many clients in the local community and service businesses, small and large, across many sectors.

Learn more

Nottingham Office

Please call:
0115 9621590

Hobsons, Alexandra House, 43 Alexandra Street, Nottingham, Nottinghamshire NG5 1AY
Newark Office

Please call:
01636 702100

Hobsons, International House, Brunel Drive, Newark, Nottinghamshire NG24 2EG

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