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How do I deal with VAT on a bad debt?


If you are VAT registered and have a bad debt which is more than six months old and less than 4 years and 6 months old you can reclaim the VAT you have already paid to HMRC.  

You should write off the debt to a Bad Debt account by raising a credit note and posting the VAT element of the outstanding amount to your VAT account.

When completing your VAT return you must add the amount of VAT you are reclaiming to your input tax (Box 4).

Sage 50 accounts software has a Wizard for writing off bad debts but this does not calculate the VAT element so you should always write off using a credit note.

You cannot reclaim VAT on a bad debt less than 6 months old even if you know it won't be paid.


Related Tags:  Bookkeeping |  VAT | 
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