V5.156 Relief from VAT on bad debts
The Advocate-General1 has considered that EU legislation 'does not permit a disproportionate restriction of the possibility of correcting the taxable amount. It does, however, permit the Member States to take into account the uncertainties surrounding non-payment by requiring the taxable person to take certain reasonable measures. However, the requirement that insolvency proceedings be concluded in relation to the customer represents a disproportionate restriction.' In that case, the conclusion of formal insolvency proceedings could take up to ten years. The Court agreed with the Advocate-General, concluding that 'a Member State may not make the reduction of the VAT taxable amount in the event of total or partial non-payment subject to the condition that insolvency proceedings have been unsuccessful when such proceedings may last longer than ten years.' In another case2, it held that Directive 2006/112/EC, art 90(1)3 must be interpreted as precluding national legislation which does not permit bad debt relief if the claimant has failed to declare the debt in bankruptcy proceedings against the debtor even where, had the debt been declared, it would not have been recoverable. The power to derogate from art 90(1)4 only applied where it would be difficult to verify the non-payment, or where non-payment might be only provisional. It would appear that the UK's rules regarding bad debt relief, as described below, meet the requirements set out by the CJEU.
VATA 1994, s 36 and regulations5 made thereunder provide relief in respect of bad debts. The relief enables
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