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HMRC internal manual

VAT Retail schemes guidance

Mail order traders: Bad debts: Defaulting agents

Agents act on behalf of their principal, the mail order house: payment to the agent therefore constitutes payment to the principal. (If this interpretation of agents’ status is disputed, follow the guidance in VTAXPER-VAT Taxable Person Manual). If a customer has remitted payment to an agent acting in their capacity as such, but this has not been passed on to the mail order house, this is termed a defaulting agent. How they are identified depends on the method used by the business to collect debts from agents. For example, an unpaid agency account may be moved into the debt collection regime and broken up into individual customer accounts. The business will then pursue the individual customers for payment of their catalogue debt but establish that the customer has already made payment to the agent. The business therefore has no bad debt and relief cannot be claimed on the supply. By analysing credit adjustments on customer accounts, the business may be able to arrive at a defaulting agents figure. Terminology may differ but deficiencies and unknowns may be the adjustments that represent payments made by the customer to the agent. Such amounts should be used to reduce the bad debt figure before any BDR is claimed.

Where it is not possible to determine the exact amounts involved, an officer of not less than SO grade may allow the use of a fixed percentage adjustment to the bad debt calculation (subject to three-yearly review - see VRS9220 on establishing the level of AOP).