HMRC VAT bad-debt relief needs invoice-to-repayment lineage
HMRC Notice 700/18 ties bad-debt relief to a specific supply, VAT already accounted for and paid, an unpaid period, write-off evidence, and a separate bad-debt account. Any later receipt can create a repayment obligation, so the control must remain open after the original claim.
Editorial figure by Indirect Tax Monitor. Source context: HMRC Relief from VAT on bad debts, Notice 700/18.
Keep eligibility, claim, and later receipts in one control chain
| Control record | Evidence to retain | What it does not establish |
|---|---|---|
| Supply and invoice | Supplier, customer, supply date, invoice, VAT amount, scheme context, original accounting period | That the debt qualifies for relief |
| Unpaid-period test | Contractual due date, supply date, later controlling date, receipts and allocations, six-month calculation | That aging alone satisfies every condition |
| Write-off and claim | Write-off date, separate bad-debt-account entry, claim period, claimed VAT, preparer and reviewer | That HMRC has accepted the claim |
| Later receipt | Receipt date and amount, invoice allocation, proportional relief previously claimed, repayment calculation and return box | That an unmatched receipt can be ignored |
| Closure | Final settlement or irrecoverability evidence, corrections, return references, review and retention decision | That commercial closure equals tax closure |
Decide eligibility at the supply and invoice level
The direct answer is to evaluate bad-debt relief against a governed supply-and-invoice record rather than an aged-receivables total. HMRC Notice 700/18 describes conditions that include VAT having been accounted for and paid, the debt being more than six months old under its timing rule, and the debt being written off in the VAT accounts and transferred to a separate bad-debt account. A past-due status in an accounts-receivable system is therefore evidence to investigate, not the relief decision itself. [1]
Link the legal supplier and customer, supply and invoice dates, contractual due date, taxable amount and VAT, original VAT accounting period and payment, credit notes, dispute or partial settlement, bad-debt write-off, applicable scheme or exception, and qualified tax review. Preserve the facts as they stood for the claim period. This article does not decide whether a reader or transaction is eligible, and a collection status or accounting provision does not supply missing tax evidence. [1]
Calculate the timing tests from retained dates
The notice says the six-month period runs from the later of the payment due date and the date of supply. It also describes a four-year-and-six-month limit for claims. The control should store the source for each date, the calculation policy, any changed payment terms, allocations of partial receipts, the proposed claim period, and the version of the notice used. A report generated from today’s terms should not silently recalculate a historical decision. [1]
Treat date exceptions as review items. Instalments, credit notes, assignments, disputed consideration, connected-party arrangements, insolvency events, scheme-specific rules, or changes to the amount due can alter the evidence a qualified owner needs. The HMRC notice contains more conditions and special cases than a generic aging rule can represent. Record the unresolved issue and owner rather than converting an incomplete file into a claim.
Preserve the separate account and return trail
The write-off and separate bad-debt account are part of the relief evidence described by HMRC. Retain the journal or ledger entry, the invoice-level schedule, claimed amount, VAT calculation, return period and box, preparer, approval, submission reference, later correction, and relationship to the original VAT entry. Keep commercial write-off, financial-statement allowance, tax relief claim, cash collection, and return adjustment as separate states. [1]
Reconcile the invoice schedule to the return without treating a balancing journal as proof of eligibility. Exceptions should distinguish a missing original VAT payment, an early claim, a missing write-off, an amount mismatch, an unallocated receipt, and an unsupported scheme assumption. The notice supplies authority guidance; it does not prove a system configuration, journal, return, submission, payment, compliance position, or HMRC outcome. [1]
Keep the control open for later payment
HMRC explains that if payment is later received for a debt on which relief was claimed, the corresponding amount must be repaid through the VAT return. Preserve every subsequent receipt, credit, set-off or other allocation to the invoice; calculate the portion of relief affected; link the repayment to a return; and retain review evidence. Closing the collections case must not disable the tax follow-up.
Indirect Tax Monitor reviewed the exact HMRC notice on October 7, 2026. The page shows a last update of September 18, 2025, so this is a durable decision resource rather than a post-October 6 development. Unknowns include the reader’s eligibility, transaction facts, scheme treatment, claim amount, accounting, return position, later receipts, correction, compliance and HMRC response; those require the underlying records and qualified judgment. [1]
Enterprise buyer test
Translate this change into the exact population, record type, workflow stage, decision owner, effective date, and evidence that could be affected. Ask current or prospective providers to demonstrate the named workflow with representative data and an exception—not a polished feature tour. Record what official documentation establishes, what a provider states, what the team observes, and what remains unresolved.
A defensible review also identifies the dependency outside the product. Authority interpretation, policy configuration, data quality, integrations, human judgment, approval rights, release governance, training, and retained evidence may remain customer or service responsibilities. The evaluation should preserve those boundaries instead of treating a technology claim as the complete operating model.
What we will watch next
Indirect Tax Monitor will watch the named source and affected market records for later evidence that changes status, scope, availability, implementation timing, workflow consequence, or the limits of the initial report. A later announcement does not silently overwrite this dated account; the change ledger preserves the sequence.