I raised an accounts receivable invoice on the 31 May 2012 for £75,000 + £15,000 VAT (£90,000).
I was paid £15,000 immediately, which simply covered the VAT element (paid to HMRC). £75,000 remains in accounts receivable on our balance sheet.
I now feel it's unlikely that the full £75,000 will be paid before 30 Nov 2012 (which is 6 months from the date the invoice was raised), as I've not received a further penny, despite promises of £500 a week or so ago!..
However, I am not incurring any costs until partial payments are made to clear-down the £75,000. E.g. Assuming tomorrow I was paid £1,000, I'd go ahead and purchase materials to supply £1,000 worth of services. The original invoice I raised clearly states "prepaid [XYZ]".
So therefore I feel writing off £75,000 as a bad debt and reclaiming [VAT] bad debt relief of £12,000 (20% of the £75,000) would be incorrect because I have not incurred any costs.
Surely if I did this, I'd be £12,000 in pocket, yet the P&L would be of no net gain/loss because of this invoice, because I understand when reclaiming [VAT] bad debt relief, the amount written off must be transferred to a separate 'bad debt' account. The only thing I would need to do is reverse the cost of sales accrual I did in May when the sale was raised.
Also, do I need to make the customer aware when I am writing the invoice off? E.g. Could I write it off now if I wished? I understand I'd need to wait until 30 Nov 2012 to reclaim [VAT] bad debt relief. We have no Ts & Cs regarding when an invoice can or cannot be written off.
I simply want him to pay the remainder, or I'll write it off now.
Thanks in advance.
P.S. We are on the accrual VAT scheme.