VAT bad debt relief
Produced in partnership with Etienne Wong of Old Square Tax Chambers

The following Tax practice note produced in partnership with Etienne Wong of Old Square Tax Chambers provides comprehensive and up to date legal information covering:

  • VAT bad debt relief
  • EU law
  • Credit notes
  • Bad debt relief
  • Written-off and outstanding amounts
  • Timing
  • Calculating the written-off amount
  • The outstanding amount
  • Example
  • Allocation of purchaser’s payments
  • More...

VAT bad debt relief

This Practice Note outlines how a taxable person who has accounted for and paid VAT on a supply, but who is not paid the price for that supply, may claim a refund of the whole or part of the VAT that they have paid.

There are different mechanisms depending on the circumstances:

  1. where the supplier agrees to refund or reduce the price after the time at which the supply was made, this is dealt with under the rules on credit notes

  2. where the price has not been paid (in whole or part) and the supplier writes it off as a bad debt, this is dealt with under the rules on bad debt relief

This Practice Note is primarily about the VAT bad debt regime, but to set this in context, it includes a brief explanation of the rules on credit notes.

EU law

Under Council Directive 2006/112/EC (the VAT Directive), VAT on a supply is payable by reference to the taxable amount (or value) of the supply, which comprises everything that constitutes consideration obtained or to be obtained by the taxable person (from any person) for that supply.

The corollary is that VAT is not payable on more than the consideration for the supply (the basis of assessment being the consideration actually received).

In the event of cancellation, refusal or total or partial non-payment of the price

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