Last updated: 16 October 2026
When can you write off a bad debt for tax purposes?
For income tax and corporation tax, you can write off a specific debt as soon as it’s reasonably clear it won’t be paid. There’s no waiting period. The six-month rule people often mention applies only to VAT bad debt relief, where you must wait six months from the payment due date before reclaiming the VAT you paid over. You need evidence that the debt is irrecoverable, such as chasing letters, a customer’s insolvency, or a court judgment that couldn’t be enforced.
Income tax and corporation tax
- Write off specific debts once they’re impaired
- No relief for general provisions, such as “5% of debtors”
- If the debt is later paid, include it as income then
- Cash basis users don’t need bad debt relief, as unpaid invoices aren’t taxed
VAT bad debt relief
| Condition | Detail |
| Waiting period | 6 months from the later of the payment due date or supply date |
| Deadline | Within 4 years and 6 months |
| VAT already paid | You must have accounted for VAT on the sale |
| Records | Keep a bad debt account |
| Customer notification | Not needed |
VAT cash accounting users don’t need relief, as VAT isn’t due until paid.
Example
A printing company invoices a customer £6,000 plus £1,200 VAT in December 2025, due by 31 January 2026. The customer enters liquidation in May 2026. The company writes off £6,000 in its accounts for the year to June 2026 and gets corporation tax relief immediately. It claims VAT bad debt relief of £1,200 in its VAT return after 31 July 2026, six months after the due date.
Debts between connected companies
Bad debts between connected companies, such as a loan to a subsidiary, are generally not deductible under the loan relationship rules, and the debtor isn’t taxed on the release.
Directors’ loans written off
If a company writes off a loan to a director, the company can’t deduct it, and the director pays income tax as if it were a dividend, plus Class 1 NIC through payroll.
Common mistakes
- Waiting six months for income tax relief
- Claiming general provisions
- Forgetting to reclaim VAT
- Not reversing relief when debts are recovered
Records to keep
Keep invoices, chasing correspondence, insolvency notices and a bad debt account for VAT.
Debts in your annual accounts
At the year end, review your debtors list and write off any that are unlikely to be paid. A specific provision for a named customer’s debt is also deductible if it is properly estimated under accounting standards.
Recovering a debt later
If a customer pays a debt you wrote off, include the amount as income in the period it is received. For VAT, repay the relief claimed in the return for the period the payment arrives.
Frequently asked questions
Do I need to tell the customer?
No.
Can I write off part of a debt?
Yes, the irrecoverable part.
What if I’m a sole trader on the cash basis?
You’re only taxed when paid, so no relief is needed.
Does a debt sold to a factoring company qualify?
The loss on sale is deductible.
Preventing bad debts
Credit checks, clear payment terms, deposits, prompt invoicing and polite but firm chasing all reduce the risk of bad debts.
Related: tax relief for an unpaid bill, writing off a director’s loan and adjusting losses for unpaid fees.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with bad debt relief advice. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
