Not bad debt

The taxpayer company was a trademark attorney. It issued invoices in the period 2005 to 2010 totalling £871 000 including VAT of £127 000 to Autonomy Corporation which disputed the amounts.

The matter was settled in November 2012. Autonomy agreed to pay £260 000 to the taxpayer of which £45 000 was VAT. The taxpayer issued a credit note for the balance of the invoiced amount that included VAT of £82 000 and then reclaimed the VAT from HMRC.

The Revenue refused the claim saying the reduction in the invoice was not in recognition in the value of supplies from the taxpayer to Autonomy but was a bad debt that became time-barred in 2012.

The First-tier Tribunal said the tax department were wrong to say there was a bad debt because Autonomy did not owe the taxpayer anything.

The tribunal also rejected HMRC’s...