One of our customers went into liquidation in 2013 and we wrote off the Bad Debt at the time. We have since received a cheque for a 'dividend' from the Insolvency Service (who have been sitting on the cheque and didn't tell us they owed it to us!). My question is, how do I deal with it in the accounts? Do I record it as a Bad Debt recovered, and are there any VAT implications?
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Yes it's a bad debt recovered, and yes you need to account for VAT on it if there was VAT on the original invoice and you have since reclaimed it.