VAT on Bad Debts

[Wheels60]

A supplier has written off a number of invoices as Bad Debts, and reclaimed the VAT element. He has then issued a claim for payment in Court at a later date, and added interest at well above base rate. Is this permissible?

[unclebulgaria67]

Why would it not be allowed ?

 

What element of their claim would be an issue ? If they have included VAT in the claim which you can prove they have already got back, speak to customs & excise about this.

[Wheels60]

I just thought that as the debt had been written off in the suppliers accounts, it was no longer recoverable in any form.

[Wheels60]

Oh AND, the VAT rate at the time the original invoices were raised was lower than it is now. Nevertheless, the original amount, + very punitive interest has been added together and VAT at the current (higher) rate, added to the lot.

[unclebulgaria67]

As you are aware 'written off' is just an accounting term, to say that the debt is no longer on their main account, as they are unlikely to receive payment. Does not mean the debt disappears and it won't be subject to recovery action.

 

But if they have already recovered the VAT, they should not be including this at the new rate. If you are concerned, then alert customs & excise that this supplier appears to be trying to gain from an unpaid invoice by making a court claim including VAT at the new rate, when they have already reclaimed VAT at the previous rate.

[Wheels60]

Thank you Unclebulgaia67,

 

Your advice is very helpful.

 

It would seem that the debt is still recoverable, but that the supplier is NOT entitled to impose VAT at a higher rate than was in force when the original debt was incurred.

 

Am I right to assume therefore, that as the years pass and interest is applied, the amount of VAT charged MUST relate to the rate in force for VAT during the year when the added interest was applied? Rather than, as the supplier seems to have done, lump the whole lot together and then charge VAT at the new higher rate on the whole amount?

 

Is it therefore right to say that the newer demands for payment presented to Court are technically incorrect because of the newer and higher rate rate of VAT imposed on the whole amount?

 

I am not sure, but it appears that the supplier has taken the old debt (Including VAT) as a figure, called that the debt, then applied interest to the whole amount and charged VAT at the current rate on the whole lot. I will have to check the details but that appears to be the case.

[unclebulgaria67]

Their claim should relate to the invoice amount, plus they can seek to claim 8% interest and their costs for the claim.

 

If they have added the wrong VAT amount, then that is a mistake or they are looking to make a gain.

 

You could send the claimant a letter under part 18 asking for a breakdown of the claimed amount, with the VAT shown separately. If you search for part 18 of CPR, it is a way of asking questions about a claim being made.

 

Claiming the wrong amount by error would not invalidate their claim, if you were thinking a defence would remove their claim. But you can issue your defence probing the amount of claim and saying it does not appear to reflect the amount of an unpaid invoice.

[Wheels60]

Thanks again,

 

Is there somewhere I can download a "Template" of the letter I need to write?

[unclebulgaria67]

See 1.6 from this link and it tells you how to set the letter out. I don't think there is a template as such

 

https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part18/pd_part18

[unclebulgaria67]

I found this whuch should help

 

http://www.consumeractiongroup.co.uk/forum/showthread.php?255329-CPR-part-18-vs-CPR-31.14-Confused-well-read-here

 

Part 18 is only to ask probing questions about the claim, not to ask for documents

[numbers666]

The vat can be included in the claim even if the output tax has been reclaimed on the companies vat return. If they do recover the debt owed, they must repay the vat recovered to hmrc. The vat claimed must be at the rate the invoice was issued at.

 

If I remember the last rate change was 2011 17.5 to 20.

 

In addition of 8% they can apply the penalty under late payment of commercial debts act. Figure varies on value of invoices and can be applied to each invoice not just the total debt.

[dx100uk]

wold be nice if you followed this please

and posted the Q&A's here

 

 

then we might be able to assist better too...

 

 

http://www.consumeractiongroup.co.uk/forum/showthread.php?419198-You-have-received-a-Claim-What-you-need-to-do.-**UPDATED-December-2014**

[Wheels60]

Many thanks to all, it has helped a great deal.

I need to examine the details of the claim to see if I can take things further.

 

 

From what I am told the claimant has taken the full value of the invoice (including VAT), then applied interest to the whole amount.

 

 

I need to check if that is correct procedure.

 

I am very grateful to all that have contributed advice and apologise for not responding sooner.