Date of issue: 21st August 2003

Timely Reminder About New Rules on VAT Bad Debt Relief
A Birmingham firm of chartered accountants is reminding businesses to use the latest rules governing VAT Bad Debt Relief, or risk VAT assessments and interest charges.

Clement Keys, Birmingham says Customs and Excise's relaxation of the rules at the turn of the year is largely in the interests of SMEs. However, points can easily be overlooked given the low-key introduction of the new guidelines.

"We are reminding businesses to ensure they act promptly and in accordance with the new rules, which came into effect on 1st January this year and apply them to all sales made on or after this date," says Steven Simmonds, Director of VAT Services at Clement Keys, Birmingham.

Under the new rules firms no longer have to write to debtors outlining that a bad debt claim is to be lodged before actually claiming the relief. Bad Debt Relief can be claimed once an invoice has remained unpaid for six months after the specified payment date.

The rules also cover the repayment of VAT on unpaid purchase invoices. Businesses which have not paid their suppliers within six months of the specified payment date must repay to Customs and Excise any VAT which has been claimed as input tax on the purchase invoices received.

The consequence for companies which do not repay this VAT promptly is to risk a VAT assessment plus interest charges, even where the supplier has not claimed Bad Debt Relief.

According to Clement Keys, Birmingham one way for SMEs with an annual turnover of less than £600,000 to avoid such difficulties is to use the Cash Accounting Scheme.

"Cash accounting is a straightforward method which provides businesses with automatic Bad Debt Relief as the VAT charged on sales invoices is only brought to account when the invoices are paid," explains Steven Simmonds.