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Bad debts and VAT

February 15th, 2010

If you are registered for VAT and have bad debts sitting on your balance sheet, you will be out of pocket for the VAT paid to HMRC on those debts.  It is possible to reclaim that VAT under the following conditions:

  • the debt is more than 6 months old and less than 3years and 6 months old;
  • you have written off the debt in your VAT accounts and transferred it to a separate bad debt account;
  • the debt has not been sold or handed to a factoring company;
  • you did not charge more than the normal selling price for the items;
  • you are only claiming VAT on the unpaid proportion of any invoice.

To claim a repayment of VAT, include the amount - at the original rate charged - with your purchases for that period, putting the total figure in Box 4 of your VAT return.  You will also need to keep a record of the original invoice, the VAT amount and the period in which it was originally paid, the period in which it was reclaimed and a history of any payments on account.

If your customer subsequently pays you, you must account for the VAT on the receipt and include it in your next return with your Sales figures.

 

The content of this article is for general information only. It should not be relied on and action which could affect your business or personal circumstances should not be taken without appropriate professional advice.