RCB/18/09 VAT—implications to the Bad Debt Relief conditions as a result of the Tribunal decision in Times Right Marketing Ltd
Revenue & Customs Brief, Issue 18. 31 March 2009
This brief announces a change in the treatment of VAT Bad Debt Relief claims made when the net VAT due on a return has not been paid or has been partly paid.
It follows the VAT Tribunal decision in Times Right Marketing Limited (TRML) (In Liquidation) LON/2006/1376.
If you make supplies of goods or services to a customer and have not been paid you may be able to claim relief from VAT on your bad debts. In order to claim relief you will have to satisfy all the conditions set out in HM Revenue & Customs (HMRC) Notice 700/18 “Relief for VAT on bad debts” (Part V8). One of the conditions is that you must already have accounted for and paid VAT on the supplies you want to claim bad debt relief on.
TRML appealed against a decision by HMRC to reject a claim for Bad Debt Relief (BDR) on the grounds that they had not originally paid the output VAT due. The Tribunal found that the deduction of input tax from output tax due should be seen as in effect payment of that output tax.
Implications of the decision
We now accept that where a BDR claim is made, payment will be taken to have been made to the extent that output tax is covered by deductible input tax.
The following examples provide further clarification. Please note