A&M Tax Advisor Update
What is Bad Debt Relief for VAT? – If you have made supplies to your customers and have not been paid, six months after the due date you can normally claim relief from the VAT on bad debts for the goods and/or services that you have supplied provided all the conditions of a BDR claim have been met.
VAT deferral due to COVID-19 – In order to mitigate the impact of the pandemic situation, the UK Government has given companies the option to defer the VAT payments due between 20 March 2020 and 30 June 2020 until 31 March 2021, with no interest or penalties applying.
How the VAT deferral scheme impact the Bad Debt Relief? – A first condition of a valid BDR claim is that you must already have accounted for VAT on the supplies and paid it to HMRC. Therefore, if you have opted to defer your VAT return payment, you will not have met the first condition to make a valid BDR claim as the output tax would not have been paid to HMRC potentially until 31 March 2021.
Next steps? – Review and amend your standard practice to BDR claim to factor the VAT payment deferral. This will be key where you have an automated system in place whereby your ERP generates a bad debt report.