Tax Tip Week 23 – Saving the Tax and VAT on Bad Debts
In the current economic climate there is more possibility of businesses suffering bad debts.
In the unfortunate event of this occurring, all is not lost.
Businesses are able to reclaim any VAT element of the unpaid money that they have paid to HMRC and also claim the bad debt as an expense in the profit and loss accounts thus reducing their corporation tax liability.
There are two distinctions to be made between an debts from an accounting perspective.
Bad Debt - A debt that will definitely not be paid
Doubtful Debt - A debt which is unpaid but may still be paid
A debt which includes VAT that is unpaid may be claimed back from HMRC but conditions do apply.
Please refer to our guidance in our Knowledgebase for Bad Debts.