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HMRC internal manual

VAT Bad Debt Relief

From
HM Revenue & Customs
Updated
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Repayment of input tax: How is the restored amount of input tax calculated?

The amount of input tax to be restored is calculated in the following way:

  • amount of payment made after repaying input tax;
  • x input tax repaid;
  • ÷ outstanding amount at the date when input tax repaid.
     

ExampleSupply received £1000.00 plus £175.00 VAT - total £1175.00.

By the time of the relevant date the recipient of the supply has only paid £500.00.

Unpaid amount = £1175.00 - £500.00 = £675.00.

Repayment due

  1. if business originally entitled to deduct £175.00

£175.00 x 675.00/1175.00 = £100.53.

  1. if business originally entitled to deduct 50% of the VAT charged (£87.50)

£87.50 x 675.00/1175.00 = £50.26.If the recipient of the supply paid the supplier a further £200, after having repaid input tax, the following amounts would be restored:

  1. 200 x 100.53 ÷ 675 = 29.78;
     
  2. 200 x 50.26 ÷ 675 = 14.89.