Can I claim tax relief on a bad debt?

For an unincorporated business using accruals accounting, relief can generally be available for a qualifying trade debt that has become bad or for a supported impairment under the relevant rules. The debt must relate to the business, and the evidence should explain why recovery is doubtful. A blanket provision against all debtors does not automatically qualify for tax relief. For a cash basis business, an unpaid customer invoice is normally not included in income until money is received, so there is no additional bad debt deduction for that missing receipt. Companies apply their own rules for trade debts, including loan relationship provisions. Connected-party debts and non-trading loans need separate consideration.

An accounting write-off is a starting point for checking relief, not proof that every tax condition is met. Keep the invoice, evidence of collection attempts and the reason for the write-off. If money is later recovered, the relevant income or tax adjustment must be recorded. VAT bad debt relief has additional conditions, including the required waiting period and writing the debt off in the records, and should not be claimed merely because the income tax treatment is settled. CASS can identify the rules that apply to your business, check whether VAT was accounted for originally and make sure a write-off does not produce a duplicate deduction or an unsupported VAT claim.