Bad Debt Relief

Many businesses overlook the potential for them to reclaim VAT they have paid to HMRC in respect of invoices they have issued but which remain unpaid more than 6 months from the due date of payment.Where a customer has not paid an invoice the business is quite in order to reclaim the VAT by including this as additional input tax at Box 4 of their VAT return, with the net value at Box 7.

The downside to this is that a similar adjustment must be made to repay input tax reclaimed on an earlier return where the business has not paid its supplier within 6 months of the due date.

Businesses which account for VAT under the VAT Cash Accounting rules need not make any adjustment either way since they benefit from automatic bad debt relief.