Write off bad debts and other transactions

Sometimes you may want to write off outstanding transactions on an account, for example, if a customer does not pay an invoice and the outstanding balance becomes a bad debt, or if you want to tidy up an account by writing off small overpayments. To make the required postings quickly and accurately, if you are using the Standard VAT or UK Flat rate VAT scheme you can use the Write Off, Refund and Returns wizard.

When you write off a transaction or an account, the balance transfers to a bad debt control account, which appears on the Profit and Loss report as an overhead. In addition, writing off a bad debt reduces the debtors or creditors figure on the Balance Sheet and the customer or suppliers balance is adjusted accordingly.

To write off transactions or accounts using the wizard

Modules > Customers > Tasks pane > Customer Write offs/Refunds.

To write off supplier transactions or accounts, Modules > Suppliers > Tasks pane > Supplier Write offs/Refunds.

Select the type of write off you want to do as follows:

Tip: You can also use the wizard to record cheque returns and refunds. Read more

Write off Accounts	Use this to write off all outstanding transactions on an account, for example, if the customer or supplier has gone out of business.
Write off Transactions	On accounts which have a positive balance, use this to write off transactions which you know are not going to be paid.
Write off Transactions below a value	On accounts which have a positive balance, use this to write off small invoice amounts left on accounts that are not worth collecting.
Write off Small Overpayments	Use this to write off overpayments resulting from receipts or credit notes that were more than the original invoice value.

If you selected Write off Accounts or Write off Transactions in step 2 > Select Account > choose the relevant account > OK.
If you selected Write off Transactions below a value or Write off Small Overpayments in step 2 > Enter value > enter the value below which transactions are to be written off.
Next > follow the steps through the wizard.

The wizard guides you through the process and makes the appropriate adjustments to your accounts. The wizard does not take VAT into account. If you need to reclaim VAT bad debt relief, you also need to post manual transactions to account for the VAT element of the write off.

VAT bad debt relief

Bad debt is relevant if you are using the Standard VAT or UK Flat Rate - invoiced based scheme. If your business operates under a VAT Cash Accounting scheme, you pay VAT only on the money you actually receive from customers, so VAT bad debt relief isn't necessary.

If your customers don't pay you for goods or services that you supply, you can claim relief from the VAT on the bad debt, as long as you meet certain conditions specified by HM Revenue & Customs (HMRC). When you write off a debt, you need to decide whether it meets these conditions, and if it does you need to check the balance on the account, and post the necessary transactions.

Example

The following example illustrates the write off of an invoice with a balance of £120.00. Based on 20% VAT you now want to recover the £20.00 VAT element.

Modules > Nominal Ledger > Journal Entry.

Enter a date and reference for the journal > enter the required information to reclaim the VAT, for example:

N/C	Name	Details	T/C	Debit	Credit
2201	Purchase Tax Control Account	Bad debt Relief	T1	20.00	0.00
8100	Bad Debt Write off	Bad Debt Relief	T9	0.00	20.00

Note: The date you use for this journal must satisfy the HMRC rules for bad debt relief.

To post the journal > Save.

You've now posted the journal to reclaim the VAT. As required by HMRC this transaction updates box 4 of the VAT Return, VAT reclaimed in this period on purchases.

Write off bad debts and other transactions

To write off transactions or accounts using the wizard

VAT bad debt relief

Example

More information