VATMARG13700 - Specific circumstances: Bad debt relief
Bad debt relief may be claimed in respect of supplies made under margin schemes, subject to a maximum of the VAT on the margin. If the debt is equal to or less than the profit margin, bad debt relief may be claimed on the VAT fraction of the debt.
But if the debt is greater than the profit margin, bad debt relief is limited to the VAT fraction of the profit margin - since this is the amount of VAT that the supplier has paid to Customs.
For example:
| - | Amount |
|---|---|
| Goods purchased for | 拢400 |
| Goods sold for | 拢500 |
| Margin on which VAT is paid to HMRC is | 拢100 |
| Customer pays | 拢350 |
| Debt is | 拢150 |
| So potential bad debt relief is | VAT fraction of 拢100 (margin) |
| But if customer pays | 拢450 |
| Debt is | 拢50, which is less than the margin, so |
| Potential bad debt relief is | VAT fraction of 拢50 (debt) |
The conditions set out in Relief from VAT on bad debts must be met.