Can I reclaim VAT on an unpaid invoice through bad debt relief?

Full answer

VAT bad debt relief lets a VAT-registered business recover output VAT it has already accounted for on a sale where the customer never pays. Under standard VAT accounting you pay HMRC the VAT on an invoice when you issue it, even before the customer pays -- so an unpaid invoice would otherwise leave you out of pocket for VAT you never received. Conditions to claim: the debt must be at least six months overdue, measured from the later of the payment due date and the date of supply; you must have already accounted for and paid the VAT to HMRC; and you must have written the debt off in your VAT accounts (a refunds-for-bad-debts account). The supply must have been charged at the correct VAT rate. You reclaim the VAT as input tax on a later VAT return -- you do not need to contact HMRC separately. Claims must generally be made within about four years and six months of the debt becoming eligible. Who it affects: any VAT-registered business using standard (invoice) accounting that has unpaid customer invoices. Businesses on the Cash Accounting Scheme do not need bad debt relief, because they only account for VAT when they are actually paid. Worked illustration of the mechanism: you sell goods for GBP 1,000 plus VAT at the standard 20% rate, so you invoice GBP 1,200 and pay HMRC GBP 200 output VAT. The customer never pays. Once the GBP 1,200 is six months overdue and written off, you reclaim the GBP 200 VAT on your next return, restoring your position. If the customer later pays, you must repay the relief to HMRC. The standard VAT rate for 2026/27 remains 20%. Keep records linking the relief to the original invoice. To work out the VAT element of an invoice, use a VAT calculator.

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