VATMARG13700 - Specific circumstances: Bad debt relief

Bad debt relief may be claimed in respect of supplies made under margin schemes, subject to a maximum of the VAT on the margin. If the debt is equal to or less than the profit margin, bad debt relief may be claimed on the VAT fraction of the debt.

But if the debt is greater than the profit margin, bad debt relief is limited to the VAT fraction of the profit margin - since this is the amount of VAT that the supplier has paid to Customs.

For example:

-	Amount
Goods purchased for	£400
Goods sold for	£500
Margin on which VAT is paid to HMRC is	£100
Customer pays	£350
Debt is	£150
So potential bad debt relief is	VAT fraction of £100 (margin)
But if customer pays	£450
Debt is	£50, which is less than the margin, so
Potential bad debt relief is	VAT fraction of £50 (debt)

The conditions set out in Notice 700/18Relief from VAT on bad debts must be met.