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VAT on bad debt BUT where scheme is cash basis

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Client has a cash basis VAT scheme.

Client has a customer that went into liqiuidation over 1 year a go owing them around £120k (gross).

Client has been told that he can apply to reclaim the VAT element of this from HMRC.

Questoin: Am I correct in my contention that HMRC will not repay VAT when the client has not actually paid it to HMRC in the first instance?

Even the basic guidance tells me I am correct but the client is insistent:

https://www.gov.uk/vat-returns/fill-in-your-return

Any comments always appreciated. 

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31st Jan 2019 16:21

The key is "reclaim".

As the trader hasn't paid it in the first place, he's nothing to reclaim.

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31st Jan 2019 16:24

Agree with you Happy Up North....he can't reclaim VAT he hasn't paid. The whole point of the cash scheme is automatic bad debt relief.

Do you know who has told your client otherwise?

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to gainsborough
31st Jan 2019 16:30

I'm tipping the liquidator.

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to lionofludesch
31st Jan 2019 16:32

Seems the most likely culprit....just above bloke down the pub....

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to lionofludesch
31st Jan 2019 16:54

lionofludesch wrote:

I'm tipping the liquidator.

Yes!

And re: comment, "just above the guy down the pub". That made me chuckle because it is exactly what I had in mind too.

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to Happy Up North Accountant
31st Jan 2019 17:07

Bingo !!

I usually find that it's worth reading the liquidator's letter carefully to see whether the client bothered with the small print.

If you still can't convince him, tell him that you'll just check it out with HMRC - preferably on the client's letterhead, so that you don't look completely foolish.

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to lionofludesch
31st Jan 2019 17:51

For a fee

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31st Jan 2019 16:48

Happy Up North Accountant wrote:

Client has been told that he can apply to reclaim the VAT element of this from HMRC.

Ask the client who told him that.
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to Wanderer
31st Jan 2019 16:55

Quote:

Client has been told that he can apply to reclaim the VAT element of this from HMRC.

He sounds very gullible.

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31st Jan 2019 16:55

Sincere thanks to the comments thus far. It's just reassuring to fact check with fellow professionals, even when I know I am correct.

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31st Jan 2019 17:07

Point him at Section 36 of the VAT Act:
"(1) Subsection (2) below applies where—
(a)a person has supplied goods or services and has accounted for and paid VAT on the supply,
(b)the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt, and
(c)a period of 6 months (beginning with the date of the supply) has elapsed.
(2)Subject to the following provisions of this section and to regulations under it the person shall be entitled, on making a claim to the Commissioners, to a refund of the amount of VAT chargeable by reference to the outstanding amount."

And ask him if he sees that part at the front that says "accounted for ...AND PAID... VAT"
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then slap him.*

*Note: This is an internet forum, casual anonymous threats of violence are part of the lingua franca. Application of these in real life situations may have serious repercussions (and not only for the ones who get slapped).

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to spidersong
31st Jan 2019 17:21

spidersong wrote:

then slap him.

Seems fair enough to me.

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31st Jan 2019 17:49

Then slap the man down the pub.
Why should he get away scot free?

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