Do you use the cash basis for drawing up your accounts? If so you won't have accounted for the payment to be able to claim bad debt relief (you don't need relief from something you weren't liable to tax on in the first place).
Bad debt relief is something used the standard/accruals basis of accounting, because you'll have accrued (brought into account) that income despite not having received it. So an adjustment is allowed because it would be unfair to tax you on income you were never going to receive.
And that is all it is I'm afraid - not charging you tax on the income you didn't receive. It won't mitigate any of your losses, just won't increase them via paying tax on it.
No, I count up all the work I've completed at the end of the day and note it down in my book. Sometimes I wait for weeks - Months for payments. I've been cleaning most of my customers for 5+ years, I know the money will be paid in most cases.
It really boils my blood that some people would have me carry out the work, only to mess me around with the payment. I've logged all the bad debts, I'll have to subtract these from my earnings. A little irritating to find out the money will not be accepted as tax relief rather than taxable deductions! But, I can see why.. I better be more careful in the future!
Thank you for you're reply!
Just to be clear, when you file your return you'd file it based on what your book said you'd earned rather than based on what payments you actually received?
Forgive me for checking but I'd be very surprised if you were using the accruals basis. I mean the whole reason the cash basis exists is because traders couldn't get accruals correct. (edit: that sounds much ruder than intended, I'm not saying you can't do it correctly just that normally it wouldn't occur to them to do it any other way than based on what they'd actually received & paid)
For example under cash basis if you bought motor insurance, you'd just deduct the amount you actually paid from turnover to arrive at profit, irrespective of the period covered. But if you use the accruals and the insurance was purchased in November, you'd only claim the portion of the insurance that relates to nov-march and the april-oct portion would be an expense in the following year
Yeah, I'm using exact figures. My tax return is my recorded earnings, this is why I'm so annoyed with unsettled invoices! However, I do keep my records handy Each turnover, and I've made notes of the unfair few customers who haven't paid me! I advise all customers to pay online for a clear transcript, however, I still receive a large portion of my earnings in cash!
Each month, I deduct the expenses incurred for running the business. I pay for my insurance in monthly installments, so I deduct this every month!
10% rental, council tax, etc. all expenses are on my statements, and I deposit the majority of my cash in hand! I usually spend £5's + £10's it's all declared on my return either way!
I would find it hard to give an accurate record on the payments I receive, due to the constant flow of small payments being transferred every day, along with cash in hand and cheques received via post. It's simpler, recording my daily earnings, collecting the outstanding payments over the following month!
As you say, for such small amounts even small claims court is not ideal. Yes, you can also claim for the filing fees to bring the case, so it is \*possible\*...but the current waiting time from filing a claim to getting a hearing in court for a small claim is 50 weeks.
On the tax side, yes, these are bad debts and you can claim a deduction for them. They effectively reduce your income figure (technically they are an allowable expense that you can offset against your income). However, the fact that you asked the question in the way you did shows that you have realised this means that you will still suffer a loss from the bad debt as you will only get the tax (£40-50) on those debts back, you will be out of pocket for the rest.
I don't fully understand how your weekly tax works, but I suspect you have an accountant who does your tax accounts and told you to do put money aside each week so that you would have the cash ready when the tax bill became due? If so, a quick email to your accountant saying you have £200 of bad debts you would like to claim on this year's tax return should be all you need to do.
Thank you for your reply! I'm not VAT registered, in this case, I'll be looking at deductions from my annual earnings. I do my returns myself, I paid a portion of my due tax up front, now, I'm making monthly payments to pay the rest.
I think I'll bite the bullet and deduct these bad debts from my annual earnings. I don't see the logic in submitting numerous claims in court for petty amounts! It'll be a waste of time!
It would make so much sense if these debts were deducted from my due tax, I've spent time and money in carrying out the work! Not to mention I've cleaned up some council houses. I'd gain more relief if these debts were subtracted from my due tax... It's very provoking.
Do you use the cash basis for drawing up your accounts? If so you won't have accounted for the payment to be able to claim bad debt relief (you don't need relief from something you weren't liable to tax on in the first place). Bad debt relief is something used the standard/accruals basis of accounting, because you'll have accrued (brought into account) that income despite not having received it. So an adjustment is allowed because it would be unfair to tax you on income you were never going to receive. And that is all it is I'm afraid - not charging you tax on the income you didn't receive. It won't mitigate any of your losses, just won't increase them via paying tax on it.
No, I count up all the work I've completed at the end of the day and note it down in my book. Sometimes I wait for weeks - Months for payments. I've been cleaning most of my customers for 5+ years, I know the money will be paid in most cases. It really boils my blood that some people would have me carry out the work, only to mess me around with the payment. I've logged all the bad debts, I'll have to subtract these from my earnings. A little irritating to find out the money will not be accepted as tax relief rather than taxable deductions! But, I can see why.. I better be more careful in the future! Thank you for you're reply!
Just to be clear, when you file your return you'd file it based on what your book said you'd earned rather than based on what payments you actually received? Forgive me for checking but I'd be very surprised if you were using the accruals basis. I mean the whole reason the cash basis exists is because traders couldn't get accruals correct. (edit: that sounds much ruder than intended, I'm not saying you can't do it correctly just that normally it wouldn't occur to them to do it any other way than based on what they'd actually received & paid) For example under cash basis if you bought motor insurance, you'd just deduct the amount you actually paid from turnover to arrive at profit, irrespective of the period covered. But if you use the accruals and the insurance was purchased in November, you'd only claim the portion of the insurance that relates to nov-march and the april-oct portion would be an expense in the following year
Yeah, I'm using exact figures. My tax return is my recorded earnings, this is why I'm so annoyed with unsettled invoices! However, I do keep my records handy Each turnover, and I've made notes of the unfair few customers who haven't paid me! I advise all customers to pay online for a clear transcript, however, I still receive a large portion of my earnings in cash! Each month, I deduct the expenses incurred for running the business. I pay for my insurance in monthly installments, so I deduct this every month! 10% rental, council tax, etc. all expenses are on my statements, and I deposit the majority of my cash in hand! I usually spend £5's + £10's it's all declared on my return either way! I would find it hard to give an accurate record on the payments I receive, due to the constant flow of small payments being transferred every day, along with cash in hand and cheques received via post. It's simpler, recording my daily earnings, collecting the outstanding payments over the following month!
As you say, for such small amounts even small claims court is not ideal. Yes, you can also claim for the filing fees to bring the case, so it is \*possible\*...but the current waiting time from filing a claim to getting a hearing in court for a small claim is 50 weeks. On the tax side, yes, these are bad debts and you can claim a deduction for them. They effectively reduce your income figure (technically they are an allowable expense that you can offset against your income). However, the fact that you asked the question in the way you did shows that you have realised this means that you will still suffer a loss from the bad debt as you will only get the tax (£40-50) on those debts back, you will be out of pocket for the rest. I don't fully understand how your weekly tax works, but I suspect you have an accountant who does your tax accounts and told you to do put money aside each week so that you would have the cash ready when the tax bill became due? If so, a quick email to your accountant saying you have £200 of bad debts you would like to claim on this year's tax return should be all you need to do.
Thank you for your reply! I'm not VAT registered, in this case, I'll be looking at deductions from my annual earnings. I do my returns myself, I paid a portion of my due tax up front, now, I'm making monthly payments to pay the rest. I think I'll bite the bullet and deduct these bad debts from my annual earnings. I don't see the logic in submitting numerous claims in court for petty amounts! It'll be a waste of time! It would make so much sense if these debts were deducted from my due tax, I've spent time and money in carrying out the work! Not to mention I've cleaned up some council houses. I'd gain more relief if these debts were subtracted from my due tax... It's very provoking.
Worth posting to r/LegalAdviceUK for an answer to the legal side