Can I claim tax relief for the unpaid bill

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    Question

    I am a self-employed builder. I carried out a job for a customer and invoiced him for £750. The customer did not pay the invoice and I have since discovered that he has been declared bankrupt. I included the £750 in my turnover figures. Can I claim tax relief for the unpaid bill?

     

    Answer

    A deduction can generally be made for a bad or doubtful debt in the year in which the debt becomes bad or doubtful. The HMRC Business Income Manual (at BIM42701) states:

    ‘A deduction is not allowed for a debt owed to a trader except:

    • a bad debt;
    • a doubtful debt to the extent estimated to be bad. In the case of the bankruptcy or insolvency of the debtor this means the debt except to the extent that any amount may reasonably be expected to be received on the debt;
    • a debt or part of a debt released by the creditor wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.’

    You should be able to write off the debt and claim a deduction of £750 in your accounts.

    in Monthly Tax Q&A
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