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Running a business:
Bad debt relief and late payers

You generally account for output VAT when you raise an invoice rather than when your customer pays you. If you are not subsequently paid then you can reclaim bad debt relief where:

you have accounted for the VAT and paid it to HM Revenue & Customs
you have written the debt off your VAT account and transferred it to a separate VAT account
the debt has remained unpaid for six months after the date of supply and six months after the payment was due
you make the claim within 3 years and 6 months of the later of the date of supply and when the payment is due and payable.

If you claim bad debt relief and later receive payment, you must refund the appropriate amount.

If, on the other hand, you are a late payer, then you will need to repay any input VAT reclaimed on unpaid invoices. You are considered a late payer if you do not pay for supplies within six months of the later of the date of the supply or the due date of payment. You need to repay the VAT regardless of whether the supplier claims bad debt relief or not.