ROBERTLEACH.CO.UK
Late settlement is not a bad debt

A company could issue a late credit note and claim back VAT when it settled an old dispute.

A trade mark attorney issued £871,000 worth of invoices to a client between 2005 and 2010. The client disputed the invoices and did not pay them.

In November 2012, an agreement was reached where the client paid £260,000 including £45,000 of VAT. It was agreed that the company would issue a credit note for the balance which included £82,000 VAT.

HMRC refused the claim on the grounds that it was a bad debt which had become time-barred.

The tribunal judge dismissed HMRC’s claim. VAT is charged in proportion to the price. The parties had agreed to reduce the price. It was not a bad debt.

Barlin Associates Ltd [2014] TC 4070

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