Value Added Tax Act 1994 section 36

Bad debts

Section 36 allows a supplier who has accounted for and paid VAT on a supply to claim a refund of that VAT from HMRC where the customer fails to pay and the debt is written off as bad.

• A VAT-registered supplier may claim a refund of VAT already paid to HMRC where the consideration for a supply has been wholly or partly written off as a bad debt, provided at least six months have elapsed since the date of supply and the value of the supply did not exceed its open market value.
• The refund is calculated by reference to the outstanding amount — that is, the amount written off as a bad debt less any part of the consideration that has since been received by the claimant or by anyone to whom the right to receive payment has been assigned.
• Where part of the consideration for a supply was not in money (for example, a part-exchange), the non-monetary element is valued as the appropriate proportion of the total of the supply's value plus the VAT charged on it.
• HMRC may make regulations governing the timing, form and evidence required for claims, the records that must be kept, and the circumstances in which a refund must be repaid — including where a previously written-off debt is subsequently paid in whole or in part.