Bad debt relief — repayment of VAT by the debtor

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Bad debt relief - repayment of VAT by the debtor
  • Conditions
  • Calculating the amount of VAT to be repaid
  • Supplier payments
  • Insolvency
  • Disputes

Bad debt relief - repayment of VAT by the debtor

This guidance note provides an overview of the VAT implications on a customer who has not paid for a supply of goods and services. For an overview of the VAT bad debt relief provisions, see the Claiming VAT bad debt relief (BDR) guidance note.


A customer will be required to repay any VAT recovered to HMRC if the following conditions are satisfied:

  1. the supplier has not been paid for the goods / services received

  2. the supply was liable to VAT at either the standard or reduced rate

  3. the debt has remained outstanding for six months after the ‘relevant date’. The relevant date is the later of:

    1. the date the supply was made

    2. the date that payment was required

Businesses are not required to repay VAT in the following cases:

  1. import VAT

  2. acquisition VAT (from 1 January 2021 payable on goods acquired in Northern Ireland from EU member states)

  3. VAT recovered under VATA 1994, s 33

  4. VAT recovered under the EU eighth or thirteenth Directive refund system (see the Foreign VAT refunds - obtaining refunds from EU member states (from 1 January 2021) and Foreign VAT refunds - refunds of UK VAT to overseas businesses (from 1 January 2021) guidance notes)

It should be noted that if the supplier allows the customer time to pay

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