Commentary

BB/19/01 VAT—bad debt relief on goods supplied by hire purchase or conditional sale

Part V16 Forms and other HMRC material

BB/19/01 VAT—bad debt relief on goods supplied by hire purchase or conditional sale

BB/19/01 VAT—bad debt relief on goods supplied by hire purchase or conditional sale

Business Brief, Issue 19. 6 December 2001

This business brief announces changes to bad debt relief entitlement for goods supplied on hire purchase or conditional sale.

Attribution of payments to goods or finance

Bad debt relief can be claimed on supplies of goods made by way of hire purchase or conditional sale where the customer has defaulted. Supplies made by hire purchase or conditional sale have two components—a supply of goods and a supply of associated finance.

When determining how much bad debt relief can be recovered, the supplier has had to allocate any payments received from their customer to the supply of the goods first and to the supply of finance only after the goods have been “paid in full”. Finance companies have pointed out that this is unfair.

New treatment

With immediate effect, suppliers can allocate each payment received from defaulting customers to goods and to finance in the same ratio as the total cost of goods and the total cost of finance to the customer. Further guidance is available in Annex 1 to this business brief.

Suppliers can re-calculate previous bad debt relief claims by applying this new policy and submitting a voluntary disclosure. All claims will be capped to three years starting six months from when the payment was due from the customer.

Repossessed goods

In determining how much bad debt relief can be claimed, a supplier who has supplied goods by hire purchase or conditional sale has to deduct the proceeds

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