Glossary

VAT bad debt relief

VAT bad debt relief lets you reclaim VAT paid on a sale the customer never paid — once the debt is six months overdue and written off.

2 min read

Reclaim VATOn unpaid sales

6 monthsAfter due

Definition

VAT bad debt relief lets a business reclaim the VAT it already paid HMRC on a sale that the customer never pays, provided the debt is at least six months overdue and written off in the accounts.

In plain terms

If you accounted for VAT on an invoice but the customer defaults, you should not be out of pocket for VAT on money you never received. Bad debt relief refunds that VAT.

Why it matters for your company

Bad debt relief protects cash when customers fail to pay under the standard VAT scheme (cash accounting avoids the issue). Claiming it promptly recovers VAT tied up in write-offs — part of managing debtor risk.