writing off a bad debt

[bhi]

Hi all,

I need to write off a bad debt for last year 07/08. What is the best way to do this and how will it affect my tax bill in future. it is for a substantial amount of money and means i am posting a loss for this period, how should i approach? i am a sole trader

 

[FENERO]

Hi bhi,

The bad debt is treated as an expense in the accounts. This is deductible for income tax purposes so long as it a specific bad debt (which it sounds like it is) as opposed to a general provision for expected levels of bad debts.

Did you pay over the VAT on this invoice when it was issued or are you on a cash receipts basis for VAT? If you paid over the VAT, you can reclaim this at the time you write off the bad debt.