CLAIMING FLAT RATE VAT ON BAD DEBTS

October 4th, 2017

If you provided services to a client and that client goes into liquidation you can recover the flat rate VAT benefit. You must be registered for the flat rate scheme and you can claim provided the debts are at least 6 months old and the debts have been written off in your accounts.

Example
You provide services to a company and the company goes into liquidation owing you £6,000 + VAT. In this example we assume you are working within the VAT Cash Accounting Scheme and therefore you would not have paid and are not due to pay the £1,200 VAT. Under HMRC rules (VAT notice 733 section 14.2) you can claim the difference between the VAT you charged to your customer and the amount you would have declared to HMRC had you been paid. In this example we assume your flat rate % is 13.5%.

The benefit and the amount you can claim is calculated as follows:

The debt is £6,000 + £1,200 VAT = £7,200
£7,200 x 13.5% = £972
Claim = £1,200 - £972 = £228

Your company is due a tax refund of £228.


Author Roger Gunning FCMA CGMA
Tax Compute are Chartered Management Accountants regulated by CIMA. Tax Compute's offices are in Cheltenham and EC2 in the city of London. We are close to Moorgate and Liverpool Street underground stations.