A recent tribunal decision may create an opportunity to make historic claims for relief from VAT on bad debts. If successful, claims will not be subject to the normal time limits and could go back as far as 1978.

Between the introduction of bad debt relief in 1978 and a change of law in 1997, the UK did not allow relief from VAT on bad debts where title to goods had not yet passed to the customer. Another rule, in force until 1990, required suppliers to prove their customer was insolvent before claiming bad debt relief.

In a VAT case currently going through the courts, the tribunal has now decided that both these conditions were incompatible with European law.

HMRC is likely to appeal against the tribunal’s decision but, if the higher courts uphold the ruling, businesses that incurred bad debts between 1978 and 1997 may now be able to recover significant amounts of VAT. It is possible that claims could also cover other onerous conditions applied by HMRC in more recent years, for example, the requirement to notify customers in writing when making a bad debt claim.

Give Remedy a call to find out if your company has grounds for a claim.