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HMRC internal manual

Business Income Manual

Value Added Tax: irrecoverable sums

S36 Value Added Tax Act 1994

Most traders have to account for VAT at the time of supply and it cannot be waived on the grounds that the trader has not received payment from his customers. The exception being small traders (those with a VAT exclusive turnover not exceeding £1,350,000) who may opt to account for VAT on their sales on a cash received basis.

A trader is entitled to claim a refund of VAT where:

  • he has accounted for and paid VAT on the supply,


  • the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt,


  • a period of six months has elapsed since the date of the supply.

A deduction in the computation of trade profits in respect of such a bad or doubtful debt should therefore be restricted to take account of the fact that any VAT included is likely to be recoverable, unless the trader can demonstrate that this is not so.