VAT – Bad Debt Relief
One of the rules permitting Bad Debt Relief (BDR) from VAT on bad debts is changing. The basic principle is that BDR can be claimed where a business makes a supply of goods or services to a customer and full payment has not been made within 6 months.
Prior to this change, one of the conditions for claiming BDR was that the claimant had properly accounted for and paid to HMRC the VAT on the supplies they wanted to claim under the BDR rules. Following a recent VAT Tribunal decision this is no longer necessary so an element of BDR may still be available even if the output tax in question had not been paid over to HMRC.
In such cases the BDR will still be restricted to the excess of input tax over output tax due on non bad debt supplies.
Affected businesses may make retrospective claims for repayment of underclaimed BDR subject to the other usual rules. All other existing rules in relation to BDR remain the same such as the time limits for claiming.