We all, at some point or the other, suffer from bad debts. However there are ways in which you can minimise your loss when this happens. For example, did you know that you can reclaim VAT when your customer doesn’t pay you?
If you provide VAT taxable goods and services and render invoices accordingly, as you will be aware, you are required to pay the VAT element to HMRC. However, if you are not paid, you can reclaim the VAT you paid to HMRC. This is known as ‘Bad Debt Relief’.
Whilst you should discuss this in detail with your accountant; however, the conditions for Bad Debt Relief include:
- The debt is more than 6 months old and less than 4.5 years old;
- You have written off the debt on your VAT accounts and transferred it to a separate bad debt account;
- The debt has not been sold or handed to a factoring company and
- You did not charge more than the normal selling price for the items.