It's usually time to stop chasing when the next step would cost more than you're likely to recover, or when the customer can't pay. Once an invoice is six months past its due date and written off in your records, you can normally reclaim the VAT you paid on it, and a specific bad debt is generally deductible for tax. If the customer pays later, both reverse.
In this article
The short version
- Stop chasing when the next step costs more than you'd recover, or the customer can't pay.
- Six months after the due date, a written-off debt lets you reclaim the VAT in box 4.
- You have four years and six months to claim the relief.
- A specific bad debt is generally tax deductible; a general percentage provision isn't.
- If the customer pays later, the VAT and the deduction both reverse.
When to stop chasing
There's no rule that fixes the moment, but three situations tend to mark it.
- The customer can't pay. A dissolved company, an insolvency notice or a documented inability to pay turns the question from how to collect into how to close the debt off.
- The next step costs more than the debt. A small claim costs £35 to £455 in court fees, and you generally can't recover a solicitor's costs, so a small debt against a customer who'll contest it is often not worth issuing.
- The file is complete and nothing has come back. You've sent a letter before action, given the response period and heard nothing, and you've decided against a claim.
Writing a debt off isn't the same as forgiving it. You can still accept payment if it arrives, and you can still pursue it later if the customer's position changes.
Six months after the due date is a useful anchor, because it's the earliest point at which a write-off gives you something back. It's also the point at which a VAT-registered customer who hasn't paid has to repay HMRC the input VAT they reclaimed on your invoice. You're not required to tell them, but it's a fact worth mentioning in a last conversation.
How to reclaim the VAT on a bad debt
If you've already paid HMRC the VAT on an invoice the customer never paid, VAT bad debt relief lets you claim it back. The conditions in HMRC's Notice 700/18 that matter in practice:
- You've accounted for the VAT and paid it to HMRC.
- You've written the debt off in your VAT records and moved it to a separate bad debt account.
- Six months have passed since the later of the due date and the date of supply.
- The debt hasn't been sold or factored.
You claim the VAT in box 4 of your VAT return, and you have four years and six months from the later of the due date and the supply date to do it. A long payment term pushes both dates out, because the clock starts at the due date.
Say you invoiced £1,200, including £200 VAT, due on 31 March, and it's still unpaid in October. Once you've written it off and moved it to your bad debt account, you can include the £200 in box 4 of your next return.
If you use the VAT cash accounting scheme, you only pay VAT when your customer pays you, so there's nothing to reclaim on an unpaid invoice.
The tax deduction and the records to keep
For a sole trader or partnership, a debt that's bad, or a doubtful debt to the extent you estimate it won't be paid, is generally deductible in the year it becomes bad or doubtful. A general provision, such as 5% of everything you're owed, isn't deductible: HMRC expects you to judge each debt on its own facts. Companies deal with trade debts under the corporation tax rules for loan relationships, which work out similarly, so check the detail with your accountant.
HMRC can ask how you decided a debt was doubtful, when and on what evidence. Your chasing history is that evidence: reminders sent, replies, calls, the letter before action, anything from the customer about their finances. If your reminders go out through a system, the history is already in one place.
For the bad debt account itself, keep the customer's name, the invoice date and number, the amount written off, the VAT claimed and the period you claimed it in, and any payments received. Keep those records for four years from the date of the claim, alongside the usual six years for VAT records.
If the customer pays after you write it off
Both sides reverse. For VAT, you repay the VAT element of what you receive in box 1 of the return for the period the payment arrives. In the example above, if the customer later pays £600 of the £1,200, you repay £100: the £200 you claimed, multiplied by £600 received, divided by the £1,200 that was outstanding. For income tax, the amount recovered is brought back into your profits for the year it arrives.
The better outcome is fewer debts reaching this point. Plenty of write-offs start as invoices that went a few weeks too long without anyone chasing them. Adfin's collection agents can offer a customer who's struggling an instalment plan within limits you set, alongside regular reminders, which gives them a way to pay in stages before you write anything off.
Common questions
When can I write off an unpaid invoice? You can write a debt off whenever you judge it bad. Six months after the due date is the earliest point at which you can also reclaim the VAT on it.
How do I claim VAT bad debt relief? Write the debt off in your VAT records, move it to a separate bad debt account, and once it's six months overdue include the VAT in box 4 of your VAT return. You have four years and six months to claim.
Does my customer have to repay the VAT on an invoice they haven't paid? Yes. A VAT-registered customer who hasn't paid within six months of the due date has to repay the input VAT they claimed, and you don't have to notify them.
Is a written-off debt tax deductible? A specific bad debt, or a doubtful one to the extent it's estimated to be bad, is generally deductible in the year it becomes bad. A general percentage provision isn't.
What happens if the customer pays after I've written the debt off? You repay the matching share of the VAT in box 1 of your next return, and the amount recovered is taxable in the year you receive it.
Can I still chase a debt I've written off? Yes. Writing it off is an accounting step, and the customer still owes you the money.
Sources
- HMRC - Relief from VAT on bad debts (VAT Notice 700/18) (accurate as of October 2026) https://www.gov.uk/guidance/relief-from-vat-on-bad-debts-notice-70018
- HMRC - Business Income Manual BIM42701: bad and doubtful debts (accurate as of October 2026) https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim42701
- HMRC - Business Income Manual BIM42715: bad and doubtful debts, evidence (accurate as of October 2026) https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim42715
- GOV.UK - Make a court claim for money: court fees (accurate as of October 2026) https://www.gov.uk/make-court-claim-for-money/court-fees
- Adfin - Credit control (accurate as of October 2026) https://www.adfin.com/credit-control
