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FTA released public clarification VATP024 on bad debt relief adjustment
- In the event a supplier does not receive payment from the customer, the supplier may adjust the output vat on the bad debt subject to certain conditions as follows.
– VAT charged and accounted for on the supply (to FTA via tax returns).
– Consideration should have been written off in full or part.
– A duration of six months should have passed from the date of supply.
– Supplier has notified the customer that the amount has been written off.
- Bad debt relief can only be taken to the extent of consideration written off in the accounts.
- During the six months period, FTA considers that supplier should engage with customer to recover the debt.
- The supplier is required to notify the customer and communicate via a letter, email or post to the customer stating the amount of consideration that has been written off. The notification to the customer for the write-off must include:
– Invoice number and date of invoice which has not been paid.
– Amount of consideration which has been written off.
- It may not be necessary to obtain an acknowledgment from the customer. However, it is prudent to retain the evidence of having sent the notification.
- The adjustment on account of bad debt relief should be made in the “Adjustment column” of Box 1 of the VAT Return. The adjustment amount should be the VAT amount only
These key highlights are for your information only and should require further advice, kindly get in touch with our tax experts.