Bad Debt Relief
A client had around £400K on its debtor ledger, approximately half of which related to retentions in the building industry.
Although the client operated invoice discounting from its bank, we advised the client that it could make a Bad Debt Relief claim on all debts that were more than 6 months old, even retentions and thereby recovering the VAT until such time that the debts were repaid. Our advice is that even if debts are not written off, Bad Debt Relief should be considered especially given that HMRC insist that creditors exceeding 6 months old must be adjusted.
This was worth £58K to our client which turned a high VAT return at a quiet time into a low return.
Consider using bad debt relief wherever possible especially as HMRC will insist on adjustments for creditors over 6 months old.
