Finance Act 1990

11 Bad debts

(1) Subsection (2) below applies where—

(a) on or after 1st April 1989 a person has supplied goods or services for a consideration in money and has accounted for and paid tax on the supply,

(b) the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt, and

(c) a period of two years (beginning with the date of the supply) has elapsed.

(2) Subject to the following provisions of this section and to regulations under it the 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.

(3) In subsection (2) above “the outstanding amount” means—

(a) if at the time of the claim the person has received no payment by way of the consideration written off in his accounts as a bad debt, an amount equal to the amount of the consideration so written off;

(b) if at that time he has received a payment or payments by way of the consideration so written off, an amount by which the payment (or the aggregate of the payments) is exceeded by the amount of the consideration so written off.

(4) A person shall not be entitled to a refund under subsection (2) above unless—

(a) the value of the supply is equal to or less than its open market value, and

(b) in the case of a supply of goods, the property in the goods has passed to the person to whom they were supplied or to a person deriving title from, through or under that person.

(5) 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 as may be so specified;

(c) require the claimant to keep, for such period and in such form and manner as may be so specified, those records and documents and a record of such information relating to the claim and to subsequent payments by way of consideration as may be so specified;

(d) require the repayment of a refund allowed under this section where any requirement of the regulations is not complied with;

(e) require the repayment of the whole or, as the case may be, an appropriate part of a refund allowed under this section where the claimant subsequently receives any payment (or further payment) by way of the consideration written off in his accounts as a bad debt;

(f) include such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient for the purposes of this section;

(g) make different provision for different circumstances.

(6) The provisions which may be included in regulations by virtue of subsection (5)(f) above may include rules for ascertaining—

(a) whether, when and to what extent consideration is to be taken to have been written off in accounts as a bad debt;

(b) whether a payment is to be taken as received by way of consideration for a particular supply;

(c) whether, and to what extent, a payment is to be taken as received by way of consideration written off in accounts as a bad debt.

(7) The provisions which may be included in regulations by virtue of subsection (5)(f) above may include rules dealing with particular cases, such as those involving part payment or mutual debts; and in particular such rules may vary the way in which the following amounts are to be calculated—

(a) the outstanding amount mentioned in subsection (2) above, and

(b) the amount of any repayment where a refund has been allowed under this section.

(8) No claim for a refund may be made under subsection (2) above in relation to a supply as regards which a refund is claimed, whether before or after the passing of this Act, under section 22 of the [1983 c. 55.] Value Added Tax Act 1983 (existing provision for refund in cases of bad debts).

(9) Section 22 of that Act shall not apply in relation to any supply made after the day on which this Act is passed.

(10) Sections 4 and 5 of that Act shall apply for determining the time when a supply is to be treated as taking place for the purposes of construing this section.

(11) That Act shall be amended as follows—

(a) in section 39(1A)(b) after the word “above” there shall be inserted the words “or section 11 of the Finance Act 1990”;

(b) in section 40(1)(f) after the words “section 22 above” there shall be inserted the words “or section 11 of the Finance Act 1990”.

(12) In section 13(2) of the [1985 c. 54.] Finance Act 1985, the word “and” at the end of paragraph (b) shall be omitted and after paragraph (c) there shall be inserted the words “and

(d) a refund under section 11 of the Finance Act 1990,”.