Many small businesses, who were only VAT registered in order to take advantage of the flat rate scheme (FRS), will have deregistered from VAT last week. It makes sense to submit the final VAT return for those businesses as soon as possible, so that the final VAT debt is known and can budgeted for.
If any sales made before the VAT registration cancelled, are not paid for, bad debt relief can be claimed. The debt must be at least six months old, and be written off in the trader’s accounts. The amount of relief claimed is calculated at the full rate of VAT applicable to the sale, not the flat rate used to calculate VAT to be paid to HMRC under the FRS.
Although such a bad debt relief claim would normally be included on a VAT return, post-deregistration the claim is made using form VAT427. This form must be signed and submitted to HMRC by post, together with original supporting documents.
If you have some very old bad debts from prior to 19 March 1997, it is now possible to claim bad debt relief on those debts where relief has not already been achieved. These will generally be debts relating to goods sold under contracts where retention of title terms applied. HMRC has issued a Brief (01/2017) that details the conditions under which those historical bad debt relief claims will be accepted.