Deductions from taxable profits for bad debts

You can make deductions from taxable profits for bad debts but you can’t just estimate the overall value of debts you don’t expect to be paid, according to Stockport accountants, IN Accountancy

Chasing debts

In addition you have to have made reasonable effort to chase the money you are owed.

HMRC deems the effort should be proportionate to the amount owed. So while a couple of chase letters would be sufficient for £50, HMRC expects you to have used a debt collection service for or sought redress in the courts for debts around the £10,000 mark.

Timing bad debt relief

The timing of bad debt claims is important. You should establish if it is a bad debt in the same accounting period as you issued the invoice. This ensures your company won’t be taxed on unpaid bills.

To do this you need to review your debtors often and not just at the end of the financial year. Having a timetable for reviewing your debts can help your case if HMRC challenges your claim that a debt is bad.

Finally it is sensible to ask your accounts department to make a final check on the status of debtors shown in the accounts before you sign them off.

For expert advice about timing bad debt claims and rules associated with this topic, email sarah@in-accountancy.co.uk or ring 0161 456 9666.

 

 

 

Let’s start a conversation 

    Subscribe me for updates and news from In Accountancy

    Related articles

    tax on interest income
    Limited Companies

    Maximise Your Tax-Free Savings Interest Income: UK Guide for 2024

    Over the last year UK savers have finally been in a position to earn some interest on their savings, but how is interest income taxed, and how can you maximise the tax free element of what you receive? 🤔
    If you meet certain criteria or have flexibility in how you structure your income, then you can potentially enjoy up to £18,570 of your income completely tax-free!! 🥳

    Read More »
    time to pay arrangement
    Limited Companies

    Time to Pay Arrangements: A Lifeline for Owner-Managed Businesses

    Are You Struggling to Meet Your Tax Obligations?

    More than 30,000 UK businesses were involved in some kind of insolvency action in 2023, which was an increase of more than 50% compared with 2021 according to an article in the Guardian earlier this year.

    And the economic outlook would suggest that despite the fact that we are no longer in recession, 2024 and 2025 will be a challenging year for UK small business.

    With this in mind we have prepared the following guide and associated video to help you understand what your options are with regards to agreeing what is known as a ‘Time to Pay’ arrangement with HMRC.

    Read More »

    Find out how we can help?

    Lectus scelerisque a donec tincidunt litora per eleifend eget ut sagittis conubia pharetra scelerisque dui ultricies duis parturient auctor adipiscing.

     

    Let’s start a conversation 

      Subscribe me for updates and news from In Accountancy

      IN-ACCOUNTANCY

      Search