A change to tax rules means that businesses can claim VAT bad debt relief even if they have not yet paid the original VAT.

Bad debt relief can be claimed where a business supplies goods or services to a customer, and the customer does not pay. The new rule means businesses can claim relief where the tax due has not yet been paid, or has only been partly paid. Previously, businesses had to have paid the VAT before claiming relief.

The rule change follows a decision by the VAT tribunal in the case of Times Right Marketing Ltd (In Liquidation). The company went to the tribunal after HMRC rejected its claim for bad debt relief on the grounds it had not paid the original VAT due. The tribunal found that payment up to the deductible amount should be taken to have been made.

This means that the deduction of input tax from output tax should be seen as, in effect, payment of that output tax.