I'm wanting to write off a bad debt in sage instant accounts - it was a bankruptcy case and we never got paid out - the debt consists of 5 invoices going back to January 2013.
Could anyone please advise of the correct way to write off this debt so as to enable me to claim back the VAT
Ive got one to do for a company - my thinking was raise a Credit note to customer account but code it to a bad debt account. The CN will allocate the VAT then to the VAT control.
Will stand to be corrected though is this is incorrect!
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
I'm not really sure but a lot of people will tell you to credit the amount to 8100 or wherever you bad debt nominal is, and to be fair it is what I have done in the past as the "wizard" just posts a credit to 8100 as a gross amount, and a T9 vat code.
One problem I see with this, ( and as usual I could be completely wrong), is that on the VAT return bad debt relief shouldn't be a reduction in output vat (box 1) which just posting a credit will do, but an increase in input vat (box 4). So if you use the wizard then it will credit the amount and put the gross to 8100 as a t9 and then you have to manually adjust your vat return box 4 for the reclaimed vat. It also helps to keep a record of vat reclaimed as it is singled out in your adjustment printout when you run your vat return.
-- Edited by Rhianrach on Thursday 29th of January 2015 04:39:39 PM
5.6 Can I issue a Credit note instead of claiming relief?
No. You may not issue a credit note simply because your customer has not paid you for your supply. You may only issue a credit note where there is a genuine mistake or overcharge or an agreed reduction in the value of your supply.
There is no difference in the amount of VAT the Vat man gets.
I would not expect a VAT Inspection to penalise you for it.
You should always protect yourself at the start of any VAT Inspection by declaring all the things you are unsure of that may be mis-declarations and that way you will at worst not have additional penalties.
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5.6 Can I issue a Credit note instead of claiming relief? No. You may not issue a credit note simply because your customer has not paid you for your supply. You may only issue a credit note where there is a genuine mistake or overcharge or an agreed reduction in the value of your supply.
Sorry for any confusion - I was just answering the specific question around how to deal with it in the Sage software, although I was unaware there was a wizard available. My thinking - the Credit note would clear the customer's account and then drop the relevant amount of VAT into box 1 on the return (which is what I understand the link is saying at section 3.15! Or have I missed something else re box 4?).
I certainly didnt mean for a credit note to be 'issued' to the client.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Transactionally, "raising" a credit note with the correct coding is exactly what the wizard does, AFAICR - it amounts to the same thing, so doing the same thing yourself is fine.
What the HMRC guidance is telling you not to do is raise a credit note in the sense of it being sent to the customer - so your advice is fine, Joanne.
(Back when the rule was that you had to send the customer a notification, I used to raise a credit note, but the credit note that was actually printed and sent was the notification itself. Two birds, one stone.)
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Sage advise you to use the wizard and apply the reclaimed vat to box 4 and not box 1. It raising a credit as per advice but it credits the gross amount as a out of scope, you then should apply an adjustment to box 4 ............. according to sage. However as mentioned it all works out the same for the vat man :)
Don't worry, I hadn't taken it as that. In hindsight, the excerpt wasn't helpful.
This would have been a better one:
2.4 How do I claim bad debt relief? To claim a refund you should include the amount of the VAT you are claiming in Box 4 of your VAT return which covers the date when you fulfil the conditions to make a claim.
This is where Bruce's point is well made. I'd think you'd get a sympathetic ear from HMRC if you comply with the all the conditions laid out except for putting the VAT in Box 1 instead of Box 4. Steve's post is on point about Box 4.
Ah, oh, yes, well, er... it seems I remember wrongly about what the wizard does, then, and I hadn't picked up on the box 1 vs box 4 point. I've tended to use the credit approach.
Oops.
I have now duly slapped my own wrist, and will use the wizard in future. ;)
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
So, the official Sage recommendation to write off a £100 sale + £20 VAT to customer Brown is a credit transaction (either manually or using the wizard)
A/C
Date
Ref
N/C
Details
Net
T/C
VAT
BROWN
Write off date
BADDBT
8100
Bad Debt Write Off
120.00
T9
0.00
i.e. Dr 8100 Bad Debt Write Off £120, Cr 1100 Debtors Control Account £120
I was just about to post the same as funnily enough I have just had to write off an amount. My apologies as I had forgotten about the journal last night, as I had previously just made an adjustment in the VAT return :)
thanks again for all your replies - I've finally got round to having a go at this and it was all going well until I realised the customer account in question on which I'm trying to reclaim the vat has along with all the outstanding invoices on the account a credit note - can anyone advise how I take this into account when posting my journal
If you have an un-allocated credit on the account then you need to allocate it. Go to bank, any account, customer receipt, enter the customer and pay in full the credit then allocate the same amount to the invoice it refers to and you should have a zero balance at the bottom, click save and the credit has then been allocated. Proceed with bad debt write off and journal out the vat from the bad debt account and you should be good to go.
