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IVA Glossary
V
VAT Bad Debt Relief
The term "VAT Bad Debt Relief" refers to the relief a person obtains related to an unpaid debt's VAT-element. Due to a current change, such a relief is given not only after the debtor has been proven to be insolvent, but also in respect to any debt that has been unpaid for at least six months.

The reason for VAT Bad Debt Relief is that today it is possible for a business to be forced to pay over VAT at a time when the company has not yet received payment from its customer. Bad debt relief allows such companies to claim a VAT refund.

The conditions for a business to be able to claim and receive VAT Bad Debt Relief are the following:

- the goods and/ or services must have been supplied and the VAT related to these must have been paid

- 6 months must have been passed after the supply-date

- the outstanding amount must have been written down as "bad debt" in the accounting records, and this must appear in the account called "refunds for bad debts"

It should be noted that if a business makes such a bad debt relief claim, it must keep records to be able to show:

- the time and characteristics of the supply, as well as information on the purchaser and consideration (generally, a VAT invoice is used for this purpose)

- the VAT amount, and the appropriate accounting period when the VAT was paid

- payments received for the supply (if it is the case)

- entry details in the account called "refunds for bad debts"
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