Mitigating VAT on bad debts
4 Eyes Ltd has received several emails from financial institutions offering to finance output VAT payments to HMRC where clients are either late to pay their invoices or are unable to pay due to the current Covid-19 crisis.
4 Eyes Ltd urges readers to file these and similar emails as junk. Several measures already exist to mitigate unpaid or late VAT.
- Businesses with an annual turnover of up to £1,35m may choose to use cash accounting, whereby output VAT only becomes payable upon receipt of payment.
- Bad debt relief automatically applies where payments are outstanding for more than 6-months.
- At present, all businesses can defer their output VAT liability until at least March 2021. By this time, bad debt relief would apply to invoices issued up until 30th Details of the VAT deferment arrangements can be found here.
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