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Is VAT due?

JodieRJodieR Experienced MentorRegistered Posts: 1,002
A client of mine did a job for a customer who said he'd pay by cheque, but then after the job was finished said he could only pay by credit card. As my client didn't have a credit card machine at the time they put the sale through one of their subbie's credit card machines, who promptly did a runner with the £5k. There are legal proceedings in place to try recover the money but no-one knows if it will be sucessful.
Do you know if there's any way my client can get out of paying the VAT on the £5k until/if they recover the funds?



  • paulrpaulr Feels At Home Registered Posts: 48
    Good morning,
    under normal circumstances Vat will be levied at point of sale / invoice date;
    Work was completed Vat is collected etc,
    best wishes,
  • DeanDean Experienced Mentor DevonRegistered Posts: 646
    As your client hasn't received payment, would you not class this as a bad debt? If the invoice has been 'outstanding' for the past 6 months you can reverse the entries a subsequently reclaim the VAT if it has already been paid across.


  • JodieRJodieR Experienced Mentor Registered Posts: 1,002
    It happened in November & I'm now filing the return from Nov - Jan, so it's not been 6 months yet unfortunately. The client's just ademant that they're not going to pay the VAT as they've not received the money and while I can see their point I can't think of a way to do it legally!
  • DeanDean Experienced Mentor DevonRegistered Posts: 646
    This highlights one advantage of 'cash accounting', presumably, they are standard accounting?

    As much as I can see their point too, I recommend you tell them to pay across the vat this quarter and reclaim it next. Least that why they are protected from 'discovery' and avoid interest being charged.


  • PoodlePoodle Experienced Mentor Registered Posts: 711
    Hi Jodie

    If your client is operating the accruals method for VAT then they have no choice but to pay the output VAT in this quarter.

    Even if you switch to cash accounting for the quarter, If HMR&C deem the subbie with the PDQ machine to have been an agent of your client then they would even have to pay over then:

    From the cash accounting manual:

    Debts collected on your behalf by an agent

    The following text has force of law

    Provided you have not assigned or sold the debt to the factoring agent or invoice discounter, you must account for VAT in the tax period in which your agent receives money on your behalf.

    The value on which VAT is due is the amount received by the agent from your customer, not any lesser amount paid to you by the agent.

    I will stick my neck out here, with my basic law knowledge.

    I would even say that there may be problems with writing this off as a bad debt and claiming relief as the customer has actually paid and satisfied his part of the contract.

    When your customer asked 'his mate' to collect the money for him a new contract started there and so it is 'his mate' that is the debtor to your client now and not the customer.

    It is your clients fault with the method of collection. he could just as easily paid your client in cash and then your client had the cash stolen.

    That aside how well does your client know his customer? The customer may have recourse through either his credit card or the supplier of the PDQ system. Just a thought.

  • claudialoweclaudialowe Trusted Regular Registered Posts: 275
    I thought that you could only reclaim the VAT once the debt had been written off for 6 months, not outstanding for 6 months.

    If there are legal proceedings going on, then the debt has not been written off.......

  • PoodlePoodle Experienced Mentor Registered Posts: 711
    Hi Claudia

    If you are unsure about VAT and bad debt relief I would suggest getting a copy of VAT guide 700/18. I like to keep a library of these as you can order them free or download from the HMR&C Website.

    Section 2


  • JodieRJodieR Experienced Mentor Registered Posts: 1,002
    Thanks everyone for your very comprehensive answers. of course it wasn't what I wanted to hear, but thanks anyway :)
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