Bad debts: what you can claim

A bad debt is money a customer owes you that you have given up collecting. Once you decide an invoice is unrecoverable you can claim it as an expense — which is fair, because you already counted the sale as income in an earlier quarterly update.

What you can claim

• Specific invoices you have written off — a customer who has gone bust or vanished.
• The unpaid part of a part-paid invoice — if they paid £200 of £800, the £600 is claimable.
• Debts already included in your turnover — you counted the sale, so you can claim the loss.
• Trade debts from genuine sales — real work done for real customers at commercial prices.
• The VAT element of qualifying debts — if you are registered, debts over six months old can be reclaimed on your VAT return.

What you can't claim

• General provisions — a round-figure guess like "we usually lose 2% of invoices" is not deductible; only named debts count.
• Debts never recorded as income — you cannot write off against tax money you never counted as a sale.
• Sales to family or friends that weren't genuine trading — a notional invoice to your brother won't qualify.
• Slow payers — an invoice five months late is not a bad debt until you genuinely give up on it.
• Money owed that isn't trading income — a personal loan to a friend sits outside the business.

Common mistakes

Writing off too early is the most common error. If you claim the debt in one quarter and the customer pays in the next, the recovery becomes income again — you have churned your figures for nothing. Wait until you are reasonably sure, and keep the chasing evidence: emails, texts and any letter before action.

The second mistake is claiming a provision instead of a specific debt. HMRC wants to see which customer, which invoice and how much. Round-figure provisions in your quarterly totals are the kind of thing that invites questions.

Plenty of sole traders also forget to claim bad debts at all, quietly absorbing the loss. If you wrote off £1,800 of invoices this year, that is £1,800 of profit you are being taxed on unnecessarily — record it.

How to record it in your MTD tracker

Record each written-off invoice under Bad debts with the customer's name, the invoice number, the date you gave up, and a short note of the steps you took. If the debt is later paid, record the money received as income in the normal way.