This applies where accruals accounting, as opposed to cash accounting is used. 

Bad debt relief is automatic six months after the later of the supply or goods or services, or when payment is due.  After this has passed, any output tax paid over should be reclaimed (and then paid back to HMRC if payment is received).

The bigger issue occurs on the other side of transactions.  In other words, if you have a six month overdue invoice owed to a supplier, then the input tax claimed on this should be repaid to HMRC until such time as the outstanding invoice is settled.

See //www.gov.uk/government/publications/vat-notice-70018-relief-from-vat-on-bad-debts/vat-notice-70018-relief-from-vat-on-bad-debts

 

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