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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: Voluntary termination of agreements

The bad debt relief regulations only apply to situations where, upon default, customers still owe money. If a customer invokes a right, for example under consumer credit law, to end the agreement early (so-called voluntary terminations) bad debt relief would only apply if there were any arrears at the time of termination that remained unpaid.