Could you claim bad debt relief on unpaid invoices?

11/08/2014 / Comments 0

So you’ve provided goods or services to a customer who, despite your best efforts, just hasn’t paid. You’re left counting the cost of the non-payment, which includes the VAT element of the invoice which has already been passed across to HM Revenue & Customs. What’s next?

Fortunately, something called bad debt relief allows businesses to claim back this sum.

Bad debt relief has re-entered the spotlight following a European Court of Justice ruling which ordered HMRC to pay back £2.3 million in VAT to a financial services company in quite a complex case involving customers defaulting on their vehicle finance arrangements.

To be eligible to claim bad debt relief, there are a few conditions:

The debt is more than six months old and less than four years and six months old
It must have been written off from your VAT accounts and transferred to a separate bad debt account
It can’t have been paid, sold or passed across to a factoring company
The items weren’t sold for more than the normal selling price

This is just one way by which businesses can recover some of the costs involved when their customers don’t pay. Similarly, the Late Payment of Commercial Debts (Interest) Act gives businesses the right to charge their customers compensation and statutory interest on any overdue invoices to help cover the debt collection costs involved.

Ultimately, despite the obvious difficulties the non-payment of an invoice can cause, there are usually ways for businesses to mitigate the impact.

If your business is struggling with late payment, it can always be worthwhile to talk to an expert.

At Hilton-Baird, we can offer a sales ledger audit service which reviews your ledger, working with you to recover any unpaid sums and claim bad debt relief on those which have been written off.

For more information about how we can help, call 0800 9774848 or email collections@hiltonbaird.co.uk.