Bad Debt 6 months

Oneillms1 · 13 November 2025 16:15

Hi there . Why do i have to wait 6 months to write off bad debt?

I know i will not be getting paid for the inovices. Any way around this?

I have just credit note the invoices instead. i would prefer it added to bad debt

Thanks

QFSteve · 13 November 2025 16:16

Hello @Oneillms1

You would see the bad debt option automatically after 6 months.

You can just create a credit manually not and select the bad debt code

FaradayKeynes · 13 November 2025 16:18

The six-month waiting period is specifically for reclaiming the VAT you have already paid to HMRC on an unpaid invoice (known as Bad Debt Relief).

For Income Tax or Corporation Tax purposes (deducting the debt from your profits), there is no fixed minimum time limit; you can write it off when the debt is genuinely considered irrecoverable.

Why the 6-Month Wait for VAT Relief?

HMRC rules state that you can only claim Bad Debt Relief for the VAT component of a debt once a period of at least six months has passed from the date the payment was due (or the date of supply, if later). The rationale is that a reasonable amount of time must pass, and efforts to recover the debt should have been made, before it is officially treated as a bad debt for VAT purposes.

Ways Around the Wait

Income/Corporation Tax: You can write off the debt for income/corporation tax purposes as soon as you have sufficient evidence that it is genuinely unrecoverable, even if it is before the six-month mark. Evidence might include:
- The customer entering liquidation or bankruptcy.
- Unsuccessful formal debt collection attempts.
- No contact with the customer for a significant period after reminders were sent.
- You must document your assessment of why the debt is irrecoverable and keep records.
VAT Cash Accounting Scheme: If your business uses the VAT Cash Accounting scheme, you do not pay the VAT to HMRC until you are paid by your customer. This means bad debts are automatically accounted for, and you do not need to claim bad debt relief or wait six months. This scheme is available to businesses with annual taxable sales below £1.35 million.
Credit Notes: You mentioned issuing credit notes. A credit note effectively cancels the original invoice, meaning the sale never happened in an accounting sense and the tax liability is removed immediately. However, this should only be done if there was an error with the original invoice or the service/goods were never provided/accepted. If the supply was made and accepted, you should use the bad debt write-off procedure instead to ensure your records (and your customer’s input tax records) are correct.