Mr A please

[Chatterbox Childcare]

I have been asked a question and I don't have a clue so could you help please?

Bad debt from 11/12 which doesn't look like there is a chance of getting it back.

Debt was originally £2070
Interest £512.00
Postage £1.23
Court Costs £180

Does the bad debt consist of just the £2070 or can the interest be added too?

Does the postage and court costs go down in expenses as professional costs or can they be added to the debt so that the total written off is £2763.23?

Any guidance would be appreciated

Thank you

[MrAnchovy]

It's just the £2,070 I'm afraid.

If you fill in the short tax return all your expenses can go in one box including the postage and court costs. The notes for the full return (SA103F) include a good description of a bad debt: "Amounts included in turnover but unpaid and written off because they will not be recovered", so that is all that should go in that box. Professional fees is probably the best place for the £180 but the postage can go under postage :D

[Chatterbox Childcare]

Thanks - she just loses the interest then?

[lorettacritchet]

Mr A, Can you actually claim for clients who don't pay and have run off as a bad debt?


QUOTE=Chatterbox Childcare;1139719]Thanks - she just loses the interest then?[/QUOTE]

[MrAnchovy]

She doesn't lose the interest because she has never actually incurred this as a cost.

Similarly you can only claim a bad debt expense as an allowable expense where you have already included the income so that you pay tax on it.

So...

In 2011/12 you record income of £2,070. This gives £207 of wear and tear allowance. At the end of the year that debt was not paid, and you subsequently decide that the debt cannot be recovered. You may write that debt off in 2011/12, in which case it offsets the income so you don't pay tax on it (but you still get tax relief for the £207 W&T). Or you may write it off in 2012/13 (or later), in which case you pay tax on the £2,070 in 2011/12 but have an additional £2,070 allowable expense in 2012/13 which will reduce the amount of tax you pay. Note that when you write it off depends on when you can say with reasonable certainty that the debt will not be recoverable, you can't just pick the year to give you the best tax position.

What was the outcome of the court case? Note that interest or "late payment charges" of £512 on a commercial debt of £2,070 outstanding for less than 18 months is unlikely to be legally enforceable.

Of course if you only count income when you receive the money (known as accounting on a "cash basis", which is not actually allowed by HMRC at present), you would never have included the £2,070 as income so you can't record it as a bad debt either (in this case you will lose out on the W&T).

[Chatterbox Childcare]

She doesn't lose the interest because she has never actually incurred this as a cost.

Similarly you can only claim a bad debt expense as an allowable expense where you have already included the income so that you pay tax on it.

So...

In 2011/12 you record income of £2,070. This gives £207 of wear and tear allowance. At the end of the year that debt was not paid, and you subsequently decide that the debt cannot be recovered. You may write that debt off in 2011/12, in which case it offsets the income so you don't pay tax on it (but you still get tax relief for the £207 W&T). Or you may write it off in 2012/13 (or later), in which case you pay tax on the £2,070 in 2011/12 but have an additional £2,070 allowable expense in 2012/13 which will reduce the amount of tax you pay. Note that when you write it off depends on when you can say with reasonable certainty that the debt will not be recoverable, you can't just pick the year to give you the best tax position.

What was the outcome of the court case? Note that interest or "late payment charges" of £512 on a commercial debt of £2,070 outstanding for less than 18 months is unlikely to be legally enforceable.

Of course if you only count income when you receive the money (known as accounting on a "cash basis", which is not actually allowed by HMRC at present), you would never have included the £2,070 as income so you can't record it as a bad debt either (in this case you will lose out on the W&T).

Bailiffs have gone in but not looking good