Reclaiming VAT Bad Debt Relief
This is the point where you need to consider why we all so many successful business owners say you need a good accountant who will stay on point with this for you all year.
Generally speaking you can summarise the ground rules as below:
- The debt owed must be over 6 months old (so if you go from the date it was due you will always cover this one off) It must also be no older than four and a half years old.
- It must be written off and provisioned in a separate reserve in your accounts ( if the debt is being litigated you should still be able to reserve it and reclaim the Vat although if payment is then subsequently made you will have to then repay the relief and adjust it again in your accounts)
- If the debt has been assigned to a Factoring Company or is subject to Invoice Finance you cannot claim VAT Bad Debt Relief, it must be re-assigned back to you. The same applies if you sell the debt on.
- You must not have sold the goods or provided the service above your normal rate.
This is just one reason why it is important to refer late paying accounts promptly, this helps reduce the need to for Bad Debt relief claims and ensures that Insolvent accounts are dealt with swiftly securing the correct evidence of insolvency to enable the claim to be made.
The reverse of VAT BAD Debt Relief is that if you fail to pay a supplier then after 12 months you will have to repay the VAT deducted in your returns, so if you ensure that your sales are maintained and credit controlled effectively you should hopefully never have to do this.
