No one likes not being paid. But, unfortunately, it happens too often in business.
And when you know you’re definitely not going to be paid, this means you need to write it off.
Most accounts and tax returns in the UK are calculated on the accrual’s basis.
This means you can be paying tax on income before you’ve received it.
But you can claim tax relief when the debt has turned into a bad one.
You can claim a deduction against income tax, corporation tax and NI when –
- The debt turns bad
- The debt is doubtful, by reason of the other party going into insolvency or bankruptcy
- The debt is released as part of a statutory insolvency arrangement
You will get tax relief at the rate at which you pay it. So, whilst you’re not going to get the money back, at least you’ll pay less tax.
If you get stuck with any bad debts, get in touch with us and we can help point you in the right direction to try and recover your money!