HMRC has updated VAT Notice 700/18 – Bad Debt Relief (BDR). The update covers how and when a claim may be made.
The Notice explains when a business is entitled to BDR and how to claim it.
If a business makes supplies of goods or services to a customer but it is not paid it may be able to claim relief from VAT on bad debts that it has incurred.
The conditions for claiming BDR are:
- a business must have accounted for the VAT on the supplies and paid it to HMRC
- a business must have written off the debt in its day-to-day VAT accounts and transferred it to a separate bad debt account
- the value of the supply must not be more than the customary selling price
- the debt must not have been paid, sold, or factored
- 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
- the deadline is within four years and six months of the later of the date payment was due and payable or the date of supply
These rules have varied over the years, so it is worth checking on supplies made before 1 April 1989.
To claim BDR a business includes the amount of the VAT being claimed in box 4 of its VAT return which covers the date when the conditions to make a claim are fulfilled.
If BDR has been claimed and subsequently a payment is received for the supply, a business must repay HMRC the VAT element included in the payment.