If the invoice has been outstanding for under 6 months, you could wait for the invoice to be unpaid for 6 months or more and then follow the ‘Bad Debt’ process, alternatively you could raise a credit note if you wanted to clear the debtor balance now.
It doesn’t really make any difference. If you raise a credit note, it reduces income. If you wait for the bad debt, it adds to costs. The net effect for tax is the same. The choice is yours as to how to treat it.
I think Steve Allen’s question related to what affect does it have on a self assessment form prior to making it a bad debt.
The answer is depending on how you record your income on your self assessment.
If you use the cash basis for tax, then it has no affect. Since you only record payments received. Whether you marked it as a bad debt or whether it remained unpaid, it’s the same thing.
If however you don’t use the cash basis, then it’s recorded as turnover regardless of payment, until its recorded as a bad debt, and only then would you record it as a cost.
If the bad debt was created in the following tax year then you will see a reduction in tax in that year. As opposed to the year in which it became due.