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HMRC internal manual

VAT Refunds

Four year cap - other provisions: Regulation 165A - Bad debt relief: Operation of the time limit

Section 36 of the VAT Act 1994 allows businesses to recover amounts declared as output tax on supplies for which they have not been paid or have been paid only in part. This is known as bad debt relief.

Claims for bad debt relief can be made once six months have passed since the later of the date on which:

  • the consideration for the supply was due and payable; or
  • the time of supply.

However, claims cannot be made later than four years and six months after the later of the two dates mentioned above.

For example, Aiya Ltd makes a supply on 25 January 2010 and the consideration falls due on 14 February. If, by 14 August 2010, the consideration has not been paid and the supply falls within the bad debt provisions, the business will have until 14 August 2014 to make the claim for relief.

You will find more information on the operation of the relief in the VAT Bad Debt Relief Manual.