Bad Debts
Bad debt relief can be claimed if it meets the criteria as specified by HMRC. (For details of the criteria please contact HMRC.) The bad debt will need to be written off to a Profit & Loss heading code – e.g. Overhead Expenses / Office costs. Alternatively, a specific heading code could be set up under Overhead Expenses e.g. Bad debt write off.
Entry for Invoiced based VAT businesses
To reclaim any sales VAT, record the cost of the bad debt, and amend the customer ledger an Input VAT journal must be entered. The VAT amount should be debited to the input VAT code, the net amount is debited to the bad debt code, and the gross amount is credited to the customer ledger. (See example below)
Entry for Cash based VAT businesses
To correct the VAT, record the cost of the bad debt, and amend the customer ledger a General-Purpose journal must be entered. The net amount is debited to the bad debt code, the VAT amount should be debited to the Revenue & Customs code, and the gross amount is credited to the customer ledger. (See example below)
Customer Ledger Amendment
To clear the customer ledger, click Ledger Payments / Ledger Receipts and select the customer. Click the Clear button, select a date, then tick to clear the invoice. (See example below)
