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HMRC internal manual

VAT Retail schemes guidance

Mechanics of the standard retail schemes: Bad debt relief

It may now be necessary for retailers to make claims for bad debt relief in the case of non-payment or part non-payment for their supplies. The details of how to claim bad debt relief are found in Notice 700/18 Relief from VAT on bad debts.

Where a retailer is unable to meet the normal requirements to claim bad debt relief, relaxations to these requirements can be considered. It must first be established that the retailer’s inability to meet the conditions results from normal and accepted business practice that cannot realistically be altered. No relaxation should be considered purely because operating the scheme is burdensome.

An example where a relaxation to the normal requirements has been agreed is with mail order businesses, the details of which are shown in VRS9250. If you think a similar relaxation is appropriate for other retailers, for example where they operate self-financed credit sales, a case should be submitted for policy advice: follow the procedure explained on the Indirect Tax Homepage. The submission should set out why the retailer cannot meet the normal requirements and what relaxation is necessary for the rest of the conditions to be met.

Notifications to customers that bad debt relief has been claimed are only necessary where the customer is a taxable person. In cases where a vast majority of sales made by retailers are to customers who are not taxable persons, we will not expect notifications to be sent unless the customer can be clearly identified as a taxable person, for example where the customer requests a tax invoice. In such cases, the retailer should not have accounted for the tax due on the original supply under a retail scheme and should have the appropriate documentation to show the actual supplies made and the amount of bad debt relief now appropriate.