Recovering VAT on bad debts

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Before recovering VAT on bad debts one of the first points to consider is whether monies owed to you qualify as a bad debt for VAT purposes.

In order to be considered a bad debt for VAT purposes, the following conditions must apply:

  • There has been a supply of goods or services by a taxable person.
  • The VAT on the supply of goods or services had been paid to HMRC
  • The whole or part of the supply has been written off as a bad debt in the VAT account and has been transferred to a separate bad debt account. However the accounts do not necessarily have to show it as a debt that is unlikely to be paid.
  • At least 6 months has passed from the date of the supply in question
  • The amount charged for the supply was not excessive. In other words it was charged at the open market value.

Having covered the conditions we’ll now consider how recovering VAT on bad debts applies to different VAT schemes.

The rest of this article covers recovering VAT on bad debts

  • standard accounting for VAT
  • cash accounting for VAT
  • VAT flat rate scheme
  • VAT margin schemes
  • FAQs and more information

Click here to read the rest of this article by Richard Baldwyn

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