VAT Notice 700/18 sets out the basic rules
Conditions for claiming bad debt relief
| Number | Condition(s) |
|---|---|
| 1. | You must already have accounted for the VAT on the supplies and paid it to HM Revenue and Customs. |
| 2. | You must have written off the debt in your day to day VAT accounts and transferred it to a separate bad debt account. |
| 3. | The value of the supply must not be more than the customary selling price. |
| 4. | The debt must not have been paid, sold or factored under a valid legal assignment. (See paragraph 3.12). |
| 5. | The debt must have remained unpaid for a period of six months after the later of the time payment was due and payable and the date of the supply (one year after the date of supply for supplies made from 1 April 1989 to 31 March 1992), and |
| 6. | If the goods were supplied before 19 March 1997, ownership must have passed to your customer, or through the customer to a third party. |
| 7. | For supplies made to a VAT registered customer between 26 November 1996 and 30 April 1997, you must send a notice to them. A copy of the notice must also be retained. (See paragraph 2.7 for an example). |
You must wait at least six months from the later of when payment was due and payable or the date of supply. The due date for payment may be determined by your normal credit terms, or by any longer period for payment which you agree with your customers. You cannot claim on a return for an accounting period earlier than the one in which you become entitled to the relief.
For supplies made after 30 April 1997, you must claim within four years and six months of the later of, when payment is due and payable or the date of supply.
Do I have to keep any records?
Yes, when you can claim a refund you must keep:
- a copy of the VAT invoices for the supplies on which you are claiming a refund. (If you did not issue a VAT invoice you must have a document showing the equivalent information), and
- a separate bad debt account showing the:
(a) amount you have written off as a bad debt
(b) amount of VAT you wish to claim as bad debt relief
(c) VAT period in which you have claimed a refund
(d) total amount of VAT charged on each supply
(e) VAT period in which you originally accounted for VAT on the supply
(f) payment received for each supply
(g) name of your customer, and
(h) date and number of the invoice to which the bad debt relates. (If you did not issue an invoice you must include sufficient information to allow the time and type of the supply to be readily identified)
(i) a copy of any notice issued
Important things to note
- For Sales after 1st January 2003 it is not necessary to inform the customer that you are claiming bad debt relief
- The Bad Debt Relief Account is not part of the statutory accounts and does not mean the bad debt has been written off
- The Bad Debt Relief Account is often kept as a separate manual record supplementary to the main VAT records
- The VAT Bad Debt Reclaim is entered as Input Tax in period in which it is claimed
- Any money which comes in subsequently is considered to include VAT
