VAT bad debt relief

In Revenue and Customs Brief 1/2017 (see http://bit.ly/2nfbTlv), HMRC has set out details of the evidence it will require from businesses to substantiate claims for historical VAT bad debt relief, following Court of Appeal judgments in British Telecommunications plc v HMRC [2014] STC 1926 and HMRC v GMAC (UK) plc [2016] EWCA Civ 1015. These cases dealt with legislation that existed until 1997. For bad debt relief to apply, the legislation required:

·         before 1 April 1989, the defaulting customer to be formally insolvent; and

·         until 19 March 1997, that title in any goods must have passed to the customer.

The court found that, although these conditions were disproportionate, claims should only be admitted for supplies made between April 1989 and March 1997. Businesses will need to supply evidence that VAT has not been reclaimed previously. This evidence will need to satisfy certain conditions listed in VAT Notice 700/18:

·         VAT must have been accounted for on the supplies and paid to HMRC;

·         the debt must have been written off in day-to-day VAT accounts and transferred to a separate bad debt account;

·         the value of the supply must not be more than the customary selling price;

·         the debt must not have been paid, sold or factored under a valid legal assignment.

·         the debt must have remained unpaid for a period of six months after the later of the time payment was due and the date of the supply (one year after the date of supply for supplies between 1 April 1989 and 31 March 1992).

Businesses unable to meet these requirements will need to show that:

·         they suffered bad debts on supplies of goods made under retention of title terms;

·         they didn’t previously claim relief; and

·         the amount claimed is correct.

HMRC says it will deal with claims submitted to it already under the terms set out in Revenue and Customs Brief 1/2017.