Interaction of bad debt relief and part payments

The Chartered Institute of Taxation has published HMRC’s response to its query on the correct accounting for bad debt relief for businesses that make VAT payments on account when they have part-paid and part-deferred the total VAT due in a quarter during the deferral period of 20 March to 30 June 2020. 

HMRC said when a supplier has a bad debt that is more than six months old they can claim bad debt relief subject to conditions including that the VAT due on the unpaid supply has been paid to HMRC. If the supplier has not paid one or more of the two interim payments on account and/or the balancing amount due they will not have paid all the VAT due for that period. This could be due to the VAT deferral scheme or some other reason.

HMRC adds: ‘The bad debt relief provisions...