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Bad Debt VAT Treatment

We are on a VAT FRS (Flat Rate Schem) - 14%.

We had a bad debt of £10 which has been written off using the Bad Debt button in March. First bad debt in 20 years so not bad going.

I’m just doing our 04/19 quarter VAT return and it has £1.40 in the “VAT reclaimed on purchases and other inputs” Box. This must be wrong on more than 1 level. It is a correction of an output so should be reflected in the Outputs Box. As a FRS business we cannot put any entries in the Inputs Box. The only way around this that I can see is to cancel the Bad Debt event and issue a credit note to replace it. It doesn’t matter much on a debt this small but had it been a much larger amount I can see this workaround being a problem.

Is there a fault in the software or an accounting rule and VAT FRS handling rule I’m not aware of?

And it gets worse.

If I reverse the bad debt it keeps the £1.40 in Inputs (Box 4) and deducts £1.40 from Outputs (Box 1). This is definitely a software fault. My VAT Return is now completely messed up and unsubmittable. How do I reverse out of these entries?

Box 4 is the correct place for Bad Debt reversals.

You are not prohibited from posting figures to box 4 on FRS. You can reclaim capital expenditure purchases in some cases, so there are legitimate reasons for posting to box 4.

There’s also an adjustment tool on the VAT return so you can make manual adjustments if you need to.

OK but there is still a problem. If I reverse the Bad Debt it leaves the original £1.40 in Box 4 and adds £1.40 to Box 1. That must be wrong. Anyway, as you say I can make manual adjustments so I’ll do it that way.

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