23rd January 2012 - Reclaiming bad debt relief on VAT only invoices

A challenge to HM Revenue & Customs (HMRC) regarding claims for bad debt relief on VAT only invoices could lead to a significant and beneficial change in the regulations, according to chartered accountants Clement Keys.

The Upper Tribunal (Tax & Chancery Chamber) has challenged the longstanding view that claims for bad debt relief should be limited to the unpaid proportion of the whole VAT invoice. 
 
“The recent Upper Tribunal’s decision in the Simpson & Marwick case could reverse that position, which would be good news for businesses seeking to reclaim bad debt relief on VAT only invoices,” says Clement Keys Director of VAT Services Steven Simmonds.
 
Clement Keys believes the Upper Tribunal’s findings will not apply to all businesses, as few businesses issue separate net and VAT only invoices, but Mr Simmonds says it can happen when a business is late registering for VAT and raises VAT only invoices for supplies made between the date of registration and the date HMRC issues their VAT number. 
 
It may also be relevant for some legal practices, garages and other businesses involved in insurance related work.
 
“Businesses which have suffered non-payment of VAT only invoices, and have limited their bad debt relief claims to the relevant VAT fraction, should therefore consider submitting protective claims pending an announcement from HMRC,” adds Mr Simmonds.