UK VAT and non payment

[Maf. King]

On Thursday 20 August 2009 22:17:21 Berni Elbourn wrote:
> Maf. King wrote:
> > Well, that depends!  VAT is normally calculated on what is known as 
> > "accruals basis" - the Tax Date of the invoice is the date which counts,
> > not the date you *actually* get the cash!
>
> Huge thanks. I have lots to learn. I guess its not so bad if GC can
> support bad debts. Does GC the invoice/bills tax system support bad
> debts to reclaim VAT for unpaid bills?
>
> Or would you just post a reversing transaction?
>


Hi Berni,

The way that I would handle bad debt would depend on a couple of factors.
(but remember that IANAA)

1. time taken to decide that the debt is bad
2. the size of the debt involved.

You can make minor corrections to a previous VAT return by adjusting the 
figures in the current return, by upto (IIRC) £2000 vat error.  Therefore, if 
the debt goes bad quickly, ie. your customer goes into liquidation or 
something similar, then I would probably just adjust the invoice to cancel 
it.

If the time taken to declare bad debt rolls over the point where the books had 
been closed for the year in question, or the sum is too large to be "minor" 
as above, then I would handle it as follows: (I haven't tried this...!)
1. Process payment as normal, transferring the funds to the bank account
2. Manually edit the transaction in the bank account to place the correct sums 
in to exps:bad debt and VAT:Input.

I think that would work.   It may be possible to "process payment" directly to 
exps:bad debt and then edit to split the VAT, but IIRC it can't be done in 
one step.

HTH,
Maf.