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Invoice past due
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Sister company support causes VAT problem

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Unpaid invoices raised between connected companies caused HMRC to challenge the VAT deductions, but the taxpayer won the argument.  

3rd Jul 2020
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It is better to not have a VAT problem in the first place rather than create a problem which then needs sorting out later. That was my conclusion about the FTT case of The Premspec Group Ltd (TC07653) – despite the taxpayer’s win, there seemed to be a simpler way of doing things.

The issue was whether purchase invoices received from two sister companies were more than six months overdue for payment and input tax, therefore, needed to be reduced on Premspec’s VAT returns.

Six-month rule

Most businesses are aware that if they suffer a bad debt in respect of sales invoices which are more than six months overdue for payment, and they are written off in the sales ledger, then any output tax declared on an earlier VAT return can be reclaimed from HMRC as bad debt relief. But to ensure HMRC is not out of pocket, the customer must reduce input tax claimed on purchase invoices once they are six months overdue for payment, (VAT Notice 700/18: Relief from bad debts).

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