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Readers’ forum: Bad debt

08 September 2020
Issue: 4759 / Categories: Forum & Feedback
Action if written-off bad debt to be recovered.

We act for a business that is owed £500 000 (including VAT) by one of their customers. The debt accumulated over a number of unpaid invoices between late 2018 and all of 2019. When our client prepared the last quarterly VAT return for 2019 they decided to write off an element of the total debt that related to some of the oldest outstanding invoices. The gross amount written off as a bad debt was £200 000 and VAT of £33 333 was reclaimed on the return.

In early 2020 our client started negotiations with their customer and the following legal agreement between them has finally been reached.

  • The client agreed to pay £150 000 at £5 000 a month.
  • £250 000 will be settled by way of a debt/equity swap.
  • The balance of £100 000 will be written off as a bad debt.

We should be grateful if...

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