Q&A October #2

Q. I am a self-employed decorator. I recently carried out a job for a customer and invoiced her for £800. She didn’t pay the invoice and I’ve since discovered that she has been declared bankrupt. I included the £800 in my annual turnover figures. Can I claim tax relief for the unpaid bill?

A. A deduction can generally be made for a bad or doubtful debt in the year in which the debt becomes bad or doubtful. HMRC’s Business Income Manual advises that:

'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 £800 in your accounts.

Please note: If you have experience of this type of situation and are uncertain how to proceed, please get in touch, we will be able to help.

About the Author

Martin Johnson

Partner

With expertise in advising family-owned companies on a range of tax, accountancy and business issues, Martin also has an in-depth knowledge of the automotive and property sectors. In addition, he provides advice on inheritance tax planning and financial management to owner-managed businesses.  Martin leads the firm in developing its expertise in the buy-to-let sector, advising both residential and commercial property owners on relevant tax and legislation issues. A further element to Martin’s role is to build Torgersens’ relationships with banks, financial advisors and specialists in commercial and employment law to ensure that the firm’s clients have access to market-leading guidance.  

To get in touch please e-mail martin.johnson@torgersens.com.