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  TC 4070