Finance Act 1978

12 Bad debt relief

(1) Where—

(a) a person has supplied goods or services for a consideration in money and has accounted for and paid tax on that supply; and

(b) the person liable to pay any outstanding amount of the consideration has become insolvent,

then, subject to subsection (2) and to regulations under subsection (3) below, the first-mentioned person shall be entitled, on making a claim to the Commissioners, to a refund of the amount of tax chargeable by reference to the outstanding amount.

(2) A person shall not be entitled to a refund under this section unless—

(a) he has proved in the insolvency and the amount for which he has proved is the outstanding amount of the consideration less the amount of his claim;

(b) the value of the supply does not exceed its open market value; and

(c) in the case of a supply of goods, the property in the goods has passed to the person to whom they were supplied.

(3) Regulations under this section may—

(a) require a claim to be made at such time and in such form and manner as may be specified by or under the regulations;

(b) require a claim to be evidenced and quantified by reference to such records and other documents preserved for such period, not exceeding three years from the making of the claim, as may be so specified;

(c) make provision for determining what amount (if any) is the outstanding amount of the consideration in particular cases such as those involving part payment or mutual debts;

(d) require the repayment of a refund under this section where any requirement of the regulations is not complied with or where the claimant subsequently proves for an amount which, taken with the amount for which he has previously proved, exceeds the amount mentioned in subsection (2)(a) above; and

(e) make different provision for different circumstances.

(4) For the purposes of this section—

(a) an individual becomes insolvent if—

(i) in England, Wales, Northern Ireland or the Isle of Man, he is adjudged bankrupt or the court makes an order for the administration in bankruptcy of his estate; or

(ii) in Scotland, an award of sequestration of his estates is made or he signs a trust deed for behoof of his creditors or a judicial factor is appointed under section 163 of the [1913 c. 20.] Bankruptcy (Scotland) Act 1913 to divide his insolvent estate among his creditors; and

(b) a company becomes insolvent if, in the United Kingdom or the Isle of Man, it is the subject of a creditors' voluntary winding up or the court makes an order for its winding up and the circumstances are such that it is unable to pay its debts;

and as respects insolvencies in Scotland this section shall have effect as if for references to proving in the insolvency there were substituted references to taking such steps as may be specified by regulations made under this section.

(5) In section 40(1) of the [1972 c. 41.] Finance Act 1972 (appeal to VAT tribunal) after paragraph (k) there shall be inserted—

“(l) a claim for a refund under section 12 of the Finance Act 1978.”

(6) This section applies where the person liable to pay the outstanding amount of the consideration becomes insolvent after 1st October 1978.