This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

VAT Bad Debt Relief

Payments: Example of attribution for goods supplied with finance under hire purchase, conditional sale or credit sale agreements: The old method (the 'straight line') method

The old method to be used to calculate this is detailed below. Company A supplies a car to a consumer on hire purchase terms, over one year:

Car Price (including VAT) £10,000
Deposit £ 1,000
Amount financed £ 9,000
Total interest (A) £ 1,800
Total amount payable (B) £10,800
Monthly payments £ 900

The customer pays the deposit and three monthly payments and then defaults. The payments should be attributed as follows:

Payments made (P) £ 2,700
Interest element of instalments received = P x (A/B) 2,700 x 1,800/10,800 = £450
Goods value = 2,700 less 450 £ 2,250
Net outstanding = amount financed (9,000) less goods value (2,250) £ 6,750
BDR claim amount 6,750 x 7/47 = £1,005.32