Bad Debt VAT Claims – Correct Record Keeping Process

The application of VAT is not without its complexities as we often say but it’s not just about the importance of getting the VAT treatment of a transaction correct but also of adhering to the correct processes – in this case the record keeping and process applied when making a claim for VAT Bad Debt Relief (BDR). BDR is an extremely useful VAT relief for any business to access as it provides for situations where VAT invoices have been raised and VAT accounted for and paid over by the supplier to HMRC – but the client/customer is late in paying that invoice – hence the business is out of pocket for the income and the VAT it had already paid over the HMRC as Output Tax. Subject to qualifying conditions – the age of the debt etc the supplier can claim VAT relief from HMRC on the value of the VAT it is owed BUT there are record keeping requirements set by legislation and this is where the taxpayer in this instance fell short. The case went all the way through the Tribunal process and has just been heard in the Court of Appeal. Regency Factors Plc lost their appeal on the basis of a poor audit trail of proof for claims made – the report can be read here and as businesses continue to face cashflow concerns is a timely remind of two VAT aspects.

Firstly, that VAT Bad Debt Relief is available for qualifying debts and should be pursued to help any struggling business, but secondly, that these relief routes do come with conditions and requirements for record keeping and failure to apply these will result in challenge from HMRC.

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