Bad Debt Relief Calculator
You delivered the work, sent the invoice, paid the VAT to the tax authority, and then the customer never paid. The commercial loss hurts, but there is a second hit most businesses forget to recover: the VAT you already handed over on money you never received. Bad debt relief lets VAT-registered businesses reclaim that output VAT once the debt is formally written off, and it is one of the most commonly unclaimed reliefs in the tax system.
The Bad Debt Relief Calculator below works out exactly what you can reclaim. Enter the invoice total, any part-payment you did receive, and the VAT rate. The tool separates the outstanding balance into the reclaimable VAT portion and the principal loss, using the same apportionment formula tax authorities prescribe for partial payments. That split is what most free calculators get wrong or skip entirely.
Quick Answer
Key takeaways
- Bad debt relief reclaims VAT already paid on unpaid invoices, not the commercial loss itself.
- Claim window (UK): from 6 months overdue until 4 years and 6 months after the tax point.
- Partial payments only reduce the claim: relief = outstanding x VAT rate / (100 + VAT rate).
- If the customer eventually pays, you must repay the relief on your next return.
- Quick Answer
- What bad debt relief actually recovers
- The 6-month rule and the 4.5-year window
- Partial payments: the allocation trap
- Worked example, checked against this exact tool
- What competing calculators miss
- Records the tax authority expects you to keep
- Frequently asked questions
- Add This Calculator to Your Website
- References
What bad debt relief actually recovers
There is a persistent misunderstanding here, so let us be precise: the tax authority is not reimbursing your $9,000 commercial loss. It is returning the $1,500 of VAT you paid on consideration you never received. The distinction matters because it sets expectations and because it determines the paperwork: you are adjusting output VAT on your return, not filing an insurance claim.
The mechanism, in the UK for example, is a Box 4 adjustment on the VAT return covering the period in which you become entitled to relief, under HMRC VAT Notice 700/18. Ireland operates a parallel system under its Tax and Duty Manual on VAT bad debts relief. The conditions are similar everywhere: you must be VAT-registered, must have accounted for and paid the output VAT, the debt must be written off in your books, and a minimum overdue period (commonly 6 months) must have passed.
The 6-month rule and the 4.5-year window
Timing is the part businesses get wrong most often, in both directions. Here is the timeline:
Invoice issued and VAT paid. You account for output VAT on the invoice in the normal way, even though no cash has arrived. The clock starts from the tax point (usually the invoice date).
Chase the debt. Relief requires genuine collection effort. Send reminders, call, and document everything: tax authorities can ask for evidence that you tried.
Six months overdue: claim opens. Once the debt is at least 6 months past the later of the due date and the supply date, and you have written it off in your books, you can reclaim the VAT via your return.
Four years and six months: claim closes. Miss this deadline and the relief is gone permanently. Diaries and aged-debtor reviews should flag invoices approaching the window, because this relief is regularly left unclaimed.
If the customer pays after you claimed, the debt is no longer bad: you must repay the VAT you reclaimed on your next return. The system is symmetric, which is why the write-off has to be genuine.
Partial payments: the allocation trap
Most bad debts are not clean zeros; the customer paid something and then stopped. This is where the math gets specific, and where a naive “invoice minus recovered” calculator misleads. Tax authorities require the relief to be based on the VAT contained in the unpaid portion, apportioned with the formula:
On the worked example: $12,000 invoiced, $3,000 recovered, $9,000 outstanding at 20% VAT. The VAT in the unpaid $9,000 is $9,000 x 20/120 = $1,500, not the full $2,000 of VAT on the original invoice, because $500 of that VAT relates to the $3,000 that was actually paid. Claiming the full $2,000 would be an overclaim.
| Scenario ($12,000 invoice, 20% VAT) | Outstanding | VAT reclaimable |
|---|---|---|
| Nothing recovered | $12,000 | $2,000.00 |
| $3,000 recovered | $9,000 | $1,500.00 |
| $6,000 recovered | $6,000 | $1,000.00 |
| $10,000 recovered | $2,000 | $333.33 |
One more trap: where a customer made payments against several invoices without specifying which, most regimes allocate payments to the earliest supply first. Match receipts to the correct invoices before computing, or the apportionment will be wrong. Our average debtor days calculator helps you spot the slow payers before they become bad debts, and the cost of redeemable debt calculator covers the funding side of carrying overdue balances.
Worked example, checked against this exact tool
Enter the pre-filled defaults ($12,000 invoice, $3,000 recovered, 20% VAT) and click Calculate. Here is what the tool returns, verified against the underlying code:
| Figure | Value |
|---|---|
| Invoice amount (incl. VAT) | $12,000.00 |
| Amount recovered | $3,000.00 |
| Outstanding (unpaid) amount | $9,000.00 |
| VAT reclaimable (headline) | $1,500.00 |
| Principal loss | $7,500.00 |
The arithmetic: $9,000 x 20 / 120 = $1,500 of VAT inside the unpaid balance. The remaining $7,500 is principal on which no VAT was charged, so there is nothing to reclaim on it. If the invoice were zero-rated (VAT rate 0), the reclaimable figure would correctly be $0.00 while the outstanding $9,000 still shows as your commercial exposure.
What competing calculators miss
BraveCalculator's bad debt relief tool takes the VAT-only approach: enter the bad debt amount and a VAT rate, and it returns bad debt x rate / 100. That formula is only correct when the input is the VAT-exclusive amount. Enter a VAT-inclusive invoice total, as most users naturally do, and it overstates the claim: $9,000 x 20% = $1,800 instead of the correct $1,500. The page never warns you which input it expects.
The old version of this page (and many similar tools) went the other way: relief = invoice minus recovered, with no VAT math at all. That answers “how much am I owed” rather than “how much VAT can I reclaim,” which is a different question with a different number. Neither approach handles the realistic middle case the way tax manuals require: a VAT-inclusive invoice with a partial payment, apportioned per the A x B / (100 + B) rule. This calculator does all three in one pass: outstanding balance, reclaimable VAT, and principal loss, with the apportionment built in. That is its winning move.
Records the tax authority expects you to keep
Claiming is the easy part; surviving an enquiry is the part that needs preparation. Based on published guidance (the Credit Protection Association's checklist is a good summary of UK practice), keep all of the following for each claim:
Your bad-debt file, per invoice
- A copy of the original VAT invoice, with its number and date.
- The write-off entry in your bad debt account, showing the amount written off and the VAT you are claiming.
- The VAT periods: the one where you originally accounted for the VAT, and the one where you claim the relief.
- Every payment received against the supply, with dates, so partial payments can be apportioned.
- Evidence of collection attempts: reminder letters, call logs, any correspondence.
- The customer's name and details.
Retention periods are long: Irish guidance requires records to be kept for 6 years from the write-off. And remember the connected-persons exclusion: in most regimes, relief is not available on debts owed by connected parties, so check that box before you claim.
Frequently asked questions
Bad debt relief is a tax mechanism that lets VAT-registered businesses reclaim the output VAT they already paid on customer invoices that were never paid and have been written off as bad debts. It recovers the VAT portion, not the commercial loss.
Generally once the invoice is at least 6 months overdue (measured from the later of the payment due date and the supply date) and you have written the debt off in your books. In the UK the claim window closes permanently 4 years and 6 months after the original tax point.
Only the VAT inside the unpaid portion is reclaimable: outstanding amount x VAT rate / (100 + VAT rate). On a $9,000 unpaid balance at 20% VAT, that is $9,000 x 20/120 = $1,500. The Irish Revenue manual states the same rule as A x B / (100 + B).
No. It covers only the VAT you accounted for on the unpaid amount. The principal loss (the net value of the goods or services) is a commercial loss, not a VAT reclaim, though it may be deductible for income or corporation tax purposes under separate rules.
You must repay the VAT relief on your next VAT return, because the debt is no longer a bad debt. The system is symmetric: relief follows the facts, and the facts changed.
Generally no. Most VAT bad-debt regimes exclude debts owed by persons connected to the supplier. Check your jurisdiction’s connected-persons definition before claiming.
The original VAT invoice, the write-off record showing the amount and VAT claimed, the VAT periods of original accounting and of the claim, all payments received, evidence of collection attempts, and the customer details. Keep them for at least 6 years from the write-off.
In the UK, you claim by including the recoverable VAT in Box 4 of the VAT return for the period in which you become entitled to the relief. Procedures differ by country, so confirm with your local tax authority.
Add This Calculator to Your Website
References
- HM Revenue & Customs, “VAT Bad Debt Relief Manual: Making a Claim” – HMRC’s manual on how and when to claim bad debt relief, including claims after deregistration. VAT Bad Debt Relief Manual: Making a Claim. Accessed October 19, 2026.
- Irish Revenue, “Tax and Duty Manual: VAT Treatment of Bad Debts” – Ireland’s rules including the A x B / (100 + B) partial-payment apportionment formula. Tax and Duty Manual: VAT Treatment of Bad Debts. Accessed October 19, 2026.
- The Credit Protection Association, “Can You Claim Bad Debt Relief on Unpaid Invoices?” – Practical checklist of conditions and the records HMRC expects for a claim. Can You Claim Bad Debt Relief on Unpaid Invoices?. Accessed October 19, 2026.
- GOV.UK, “VAT Returns” – How and when to submit UK VAT returns, including Box 4 reclaim entries. VAT Returns. Accessed October 19, 2026.
- European Commission, “VAT Rules” – The EU VAT framework within which member-state bad debt relief rules operate. VAT Rules. Accessed October 19, 2026.
- Australian Taxation Office, “GSTR 2001/2: GST and Bad Debts” – Australia’s GST ruling: 1/11th adjustments for debts written off or overdue 12 months. GSTR 2001/2: GST and Bad Debts. Accessed October 19, 2026.
- Investopedia, “Bad Debt” – Definition of bad debt and the write-off concept in accounting. Bad Debt. Accessed October 19, 2026.
- VAT Calculator UK, “Online VAT Calculator” – Reference for UK VAT rates and the 6-month bad debt relief rule. Online VAT Calculator. Accessed October 19, 2026.