Failure to keep a single account for VAT bad debt relief

Regency provided factoring services. After the client has assigned invoices to it the taxpayer advanced funds to the client based on a proportion of the amount of the invoices. Regency then collected the invoice value from the customers and any balance due is paid to the client. If it was unable to collect an amount either from a customer or the client it claimed bad debt relief (VATA 1994 s 36).

HMRC refused Regency’s claim for bad debt relief saying the consideration for the supply was received by Regency when it made its initial advance so there was no bad debt to write off. In any event the taxpayer did not comply with the requirements of the VAT Regulations SI 1995/2518 reg 168.

The First-tier Tribunal and Upper Tribunal dismissed the taxpayer’s appeal.

In the Court of Appeal Lord Justice Lewison said the court’s...