Accounting for VAT on bad debts when using the VAT margin scheme if you’re a seller
How to account for VAT on bad debts when using the VAT margin scheme.
There are special rules to follow if you use the VAT margin scheme and claim VAT relief on bad debts.
VAT relief you can claim
If you supply goods and do not receive payment within certain time limits, you may claim relief from VAT on the ‘bad debt’.
Read full details of the time limits and conditions for claiming in Relief from VAT on bad debts (VAT Notice 700/18).
Guidance on how to deal with bad debts if you’re using a margin scheme is in Paragraphs 5.7 and 5.8 of the notice. It includes 2 examples to show how it works in practise.
Under margin schemes, the amount of VAT on which you claim relief on the bad debt cannot be more than the amount of VAT previously accounted for on the margin.
VAT returns
You must show any claims for bad debt relief in your bad debt account and on your VAT return.