Bad debt relief - you will recover VAT faster
Lucky entrepreneurs who have never faced late payments from their contractors. Unfortunately, most of us have dealt with such. While you can forgive a few days of delay, so far there are often situations where we never see the money. This is problematic because we have to pay VAT on amounts that have never been received by us. To get its refund, we can take advantage of the bad debt relief.
Shorter deadline for VAT recovery
Bad debt relief makes it possible to reduce the tax base and the amount of tax due for the supply of goods or services in the territory of the country in the case of unpaid receivables (which have not also been sold), from which the payment deadline has already been 90 days. Until the end of 2018, there was a longer period, as much as 150 days. From January 1, 2019, the debt is considered probably uncollectable 90 days after the last day of the payment deadline. This issue is regulated in Art. 89a, section 1a "The irrecoverability of receivables is considered probable if the receivable has not been settled or disposed of in any form within 90 days from the date of its payment date specified in the contract or on the invoice."
Who can use it?
Bad debt relief is provided for in the VAT Act. In 89a sec. 2 there are clearly indicated situations when it can be used.
1.the delivery of goods or the provision of services is made to a taxpayer, registered as an active VAT taxpayer, not in the process of restructuring, bankruptcy or liquidation;
2. on the day preceding the day of submitting the tax declaration, in which the correction is made, the creditor and the debtor are active taxpayers registered as VAT payers, the debtor is not in the process of restructuring, bankruptcy or liquidation;
3. from the date of issuing the invoice documenting the debt, no more than 2 years have passed, counting from the end of the year in which it was issued.
How to make a deduction?
The creditor is not required to inform the debtor about the exercise of the right to bad debt relief. However, in order to be able to take advantage of the relief, he or she must submit an appropriate form to the tax office. I am talking about the VAT-ZD declaration. When submitting the monthly VAT-7 statement, we include the output tax less the shown relief.
The correction may be made in the settlement for the period in which the irrecoverability of the debt is considered probable, i.e. the month in which 90 days elapses from the payment date, provided that the debt has not been settled or disposed of in any form by the date of the declaration.
However, we must remember that in the event of recovery of arrears for which we have made a VAT correction, we are obliged to re-submit the correction and settle with the tax office. This happens even if the debt has been reimbursed to us only partially - then we are obliged to pay tax again on the amount that we have recovered.
The same regulations apply to the debtor who, according to the law, is obliged to submit a correction. However, the creditor, in accordance with Art. 89a may use this solution, but the debtor, pursuant to Art. 89b already has such an obligation.
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