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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Challenge of selected purchases and importations: bad debts

  • the legal provisions and procedures relating to claims for relief from VAT on bad debts are contained in VBDR - Bad Debt Relief and in Notice 700/18 Relief from VAT on bad debts;
  • when it is found that an over declaration of tax entered on a trader’s return is in respect of bad debts, the officer should establish that the trader is maintaining sufficient records to confirm that a bad debt has been incurred;
  • the degree to which this action should be supplemented by further checks of particular claims should be decided by reference to the amount involved, the relative revenue risks and the time available, as well as the outcome of the basic checks;
  • VBDR - Bad Debt Relief gives details of particular points to be covered, but the general objective should impose checks sufficient to afford reasonable satisfaction that the claims are accurate and in accordance with the relevant conditions; and
  • the trader should be made aware that future receipt of moneys, in full or partial satisfaction of a bad debt, would be liable to VAT and require adjustment in the VAT Account.