Bad Debt Management
VAT
With regards to indirect taxation, it is possible to claim full relief as long as the bad debt is irrecoverable. A bad debt may be considered irrecoverable if it meets all the following conditions:
- The balance has been outstanding for at least two years.
- The situation has been properly reflected in the accounting records.
- The taxable base of the balance exceeds € 300.
- A claim has been pursued by legal proceedings.
Once all of the above conditions are met the business can issue a credit note.
This method of relief is not available in all cases, for instance when the debtor balance is used as security for bank loan purposes, or when it is guaranteed by an insurance policy.
There may also be restrictions, if the debtor goes into voluntary liquidation proceedings. Your advisor should be able to provide you with full details in relation to these issues.