If your business is suffering in the form of bad debts, getting tax relief at the earliest possible stage can help to reduce the pain. Ian Orgill, looks at what you claim for and when?
Once your business has made a sale it should be treated as income for your business even if you don’t get paid. However, to compensate you can claim a debt that’s gone bad as a business expense. The amount claimable is the unpaid sum excluding any VAT.
If you fail to identify bad debts and claim a deduction for them, it means that you will have paid tax on sales for which you have not received the cash. That’s essentially handing over your cash to HMRC for nothing. Businesses that have been out of pocket for years because they haven’t made a proper review of their debtors at the end of their financial year, so you really should take action.
The priority is identifying those debts you can claim for. You can’t make a general estimate, even where you have a lot of low value transactions which you know will result in some bad debts. Each and every debt has to be considered individually.
There are situations where a debt appears good at the end of your accounting period but subsequently becomes bad. In this situation, HMRC will accept a claim for relief.
It’s advisable to maximise tax relief for bad debts. Prior to signing your annual accounts make a final review of all the debts included. You may not have been aware that a debt was going bad at the time but subsequent events may now show that it is.
If you are confident that a debt is not going to be paid, you can claim it as an expense in your accounts. You can decide whether a debt is bad right up to the point the annual accounts are finalised, so make a detailed review before signing them off. Identifying doubtful debts could save you significant amounts in tax.
11 November 2019
Even in this digital age some businesses remain heavily reliant on cash transactions. HMRC views these as high risk and as a result targets cash businesses with VAT enquiries, using special techniques to justify investigating them.
6 November 2019
The first big deadline for MTDfV is history and whilst there was a fairly high failure rate, it was not as bad as originally feared.
29 October 2019
BPR shelters the value of your business from the HMRC. The trouble is though, when you retire from your unincorporated business, the relief disappears immediately. CHW explain how you can preserve it.
22 October 2019
New rules will apply to employment termination payments from 6 April 2020 meaning that some settlements will be subject to NI in addition to tax. With this in mind, CHW look at how you can you improve the tax and NI efficiency of a termination settlement.