4 July 2013    |    Uncategorized

Bad debt relief using the VAT Flat Rate Scheme

Bad Debt relief is available on unpaid VAT invoices.  If you use the flat rate cash-based turnover scheme you may still be due a VAT claim even though you will not have paid a VAT contribution to HMRC. Section 14 of the VAT Notice 733 spells it out:


The following is extracted from HMRCs notice:

If you use the cash turnover method of accounting you may be eligible for bad debt relief if:


If you meet all these conditions, your claim will be for the difference between the VAT you charged to your customer and the amount you would have declared to us had you been paid. As with businesses that use the basic and retailer’s methods, this is because your flat rate takes account of input tax that you would otherwise have been entitled to, if you had been paid by your customer.

You can make the adjustment as follows:

    1. Identify the VAT in the unpaid supply – Total price = £1,200
      VAT= £200


  1. Calculate the VAT that would have been paid under the flat rate scheme if your customer had paid you – £1,200 × (say) 10% = £120. That is the total owed (including VAT) multiplied by your flat rate scheme percentage.
  2. Subtract the sum of step 2 from the sum of step 1 – £200-£120 = £80
  3. Step 3 is your special allowance under the flat rate scheme. Include it in your VAT account in your next return.

If you require further information on how this will affect you, then please contact Angus Nicolson.



The information provided is for general information purposes only.

Legislation and details may have changed since this was written.  The text may not include all matters that are relevant to your individual situation.

You should not make decisions, or refrain from making decisions, without taking further professional advice about your specific circumstances.

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