If a customer never pays, you should not be out of pocket for the VAT you already handed to HMRC on the sale. VAT bad debt relief gives that VAT back — here is how it works, and why it is the fallback, not the goal.
If a customer never pays and you have already accounted for VAT on the invoice, you can usually reclaim that VAT from HMRC once the debt is at least six months overdue and you have written it off in your accounts. It gives back the VAT you paid over — it does not recover the debt itself, so it is a fallback, not a substitute for chasing the invoice.
You pay HMRC the VAT on a sale whether or not the customer pays you. Relief is how you get that VAT back if they never do.
Under standard VAT accounting you hand HMRC the output VAT on an invoice in the period you raise it — before the customer has paid. If the invoice then goes unpaid, VAT bad debt relief lets you reclaim that VAT on a later return. The main conditions are that the debt is at least six months overdue (from the later of the due date and the date of supply), that you have accounted for and paid the VAT, and that you have written the debt off in your VAT accounts. There is a long-stop time limit — broadly four years and six months from the later of the due date and the date of supply.
The exact conditions and mechanics are HMRC’s, and they can change, so use the current HMRC guidance and your accountant for the detail. This page is general information, not tax advice.
Relief returns the VAT slice; the debt itself is the larger number, and it is still recoverable.
On a £1,000 invoice plus £200 VAT, relief gives back the £200 you paid HMRC — not the £1,000 the customer still owes you. So before you treat a debt as lost, it is worth pursuing it: a reminder, then a Letter Before Action, and if needed a County Court claim recover the whole invoice, not just the tax. And before you spend on a claim, it is worth checking the debtor can actually pay.
The VAT and the profit-tax treatment are two separate reliefs — a debt that is genuinely lost can touch both.
Separately from the VAT, a trade debt that has become genuinely irrecoverable can usually be written off as a bad-debt expense, reducing your taxable profit for corporation or income tax. The timing and evidence matter, and the two reliefs have different rules, so this is one to walk through with your accountant rather than treat as a rule of thumb.
If you work with accountants, or you are one, the for-accountants page covers how RobinReturn fits a client’s recovery process. New to the terms here? See the glossary. RobinReturn is not a tax adviser and does not give tax advice.
When you invoice a customer you normally pay the VAT on that sale over to HMRC, whether or not the customer has paid you. VAT bad debt relief lets you reclaim that VAT if the invoice goes unpaid. It gives you back the VAT you already accounted for — it does not recover the debt itself.
The main conditions are that the debt is at least six months overdue (measured from the later of the payment-due date and the date of supply), that you have already accounted for and paid the VAT to HMRC, and that you have written the debt off in your VAT accounts. There is a time limit — broadly, you must claim within four years and six months of the later of the payment-due date and the date of supply. Check the current HMRC guidance for the detail.
No — it only returns the VAT element, not the debt. If you invoiced £1,000 plus £200 VAT, relief recovers the £200 you paid HMRC, not the £1,000 you are still owed. That is why it is a fallback: recovering the debt itself, through a reminder, a Letter Before Action and if needed a claim, gets you the whole invoice.
Often, yes — separately from the VAT. A trade debt that has become genuinely irrecoverable can usually be written off as a bad-debt expense, reducing your taxable profit for corporation or income tax. The rules and timing matter, so treat this as general information and confirm the position with your accountant.
Chase first where the debtor can actually pay — a written-off debt you later recover is better than relief on a debt you gave up on too early. Writing off and claiming relief makes sense once the debt is genuinely irrecoverable. Checking whether the debtor can pay before you decide is worth the few minutes it takes.
Relief gives back the VAT; recovering the debt gives back the lot. Start with a reminder while the debt is still fresh. RobinReturn is not a law firm or a tax adviser and does not give legal or tax advice.