If you have an unpaid invoice which you consider to be a bad debt, you may reclaim VAT previously declared and paid on sales if:-
- The debt is more than 6 months old (from the due date for payment)
- The sales price was not more than the usual selling price
- You have not sold the debt to anyone else
You must also have written-off the debt in the accounting records. If you have computerised accounting records the easiest way to do this is to raise a dummy credit note which mirrors the outstanding value. You do not have to send the credit note to the customer (unless the invoice has been outstanding since 1997 at least), but this will ensure that the system picks up the VAT element when the next VAT return is run. The downside of doing this, is that if you are still pursuing the debtor for payment, it will no longer be listed under the aged debtor report to act as a prompt.
If you would like further help or advice on reclaiming VAT on a bad debt, please call David Swann on 01733 372681 or email him at david@greenstones.co.uk