VAT Threshold Question

FlappingAround

Hi, I'm new to the forum and joined as I simply cannot find the answer to this question anywhere. I've tried the HMRC VAT Helpline but it just seems to be a never-ending queue to speak to someone.

For over 10 years I've run a small limited company. As most of the turnover is profit (very low costs), I've been able to provide an adequate income without exceeding the VAT threshold in any rolling 12 month period.

In late 2025 / early 2026 I did £30k worth of work for a non-UK company that didn't pay me and have since gone into administration with liabilities at least 15 times greater than its assets. As an unsecured creditor I will see nothing. My first bad debt ever so I'll just have to take it on the chin and find some contracts to earn the money I have lost (hopefully).

The question is can I treat the unpaid invoices for the bad debt as zero in terms of my turnover figure where the VAT threshold is concerned? Had these invoices been paid I would have had turnover of about £85k. If I find contracts for say £25K and the bad debt contracts of £30k are included then the turnover in my books of £110K will exceed the VAT threshold. If I can disregard the bad debt of £30k then turnover is £80k and within the threshold.

The company accounts and one employee payroll run are so simple I've always done them myself. This is the first time I've come across a question I just can't find the answer to.

I'd be very grateful if anyone can point me in the right direction.

MeteredOut

Generally, VAT is based on taxable supplies you make, not what monies you receive.

Two questions

1. What does your accountant say regarding this point?
2. Was the service you provided outside the scope of VAT because it was to a non-UK company.

If you cannot answer 2 because you do not have an accountant, then… you need an accountant.

(you could also throw your question into AI and it will give a good approximation of an answer, but be sure to double check its sources)

uknick

Please confirm if you are accounting for VAT under the standard or cash based rules. It is not clear from your original post.

I ask because you say you want to account for the £30k invoice as zero in your turnover as it's never going to get paid. This implies you are using cash based VAT accounting. If you are using the standard method of VAT, i.e. account for VAT when you raise the sales invoice, you'll already have declared it in your turnover figure.

With regard to dealing with the bad debt, under standard VAT accounting you're allowed to claim for a refund of output VAT 6 months after the invoice is due and you have followed a number of accounting/administrative procedures.

Finally, I don't really understand your comment;

"As most of the turnover is profit (very low costs), I've been able to provide an adequate income without exceeding the VAT threshold in any rolling 12 month period"

Do you mean you keep your pricing low due to low running costs?

MeteredOut

https://forums.moneysavingexpert.com/discussion/comment/82012343#Comment_82012343

Re. the refund, I assume the VAT would have to be properly declared in the appropriate year, and then reclaimed? Could the OP retrospectively do that since the VAT period was end of last year/start of thus year? Though the 6 month limit may have already passed to claim any refund.

I always thought the VAT threshold test was based on total taxable supplies, and not whether cash or standard accounting basis was used, but happy to be corrected.

OP, you say the company is administration? Do you mean it is still active and under the control of administrators, or has it been liquidated/struck off?

FlappingAround

https://forums.moneysavingexpert.com/discussion/comment/82012278#Comment_82012278

Thank you for replying. I've never had an accountant as it's all been so easy in the past. Also, I've always kept my turnover under the VAT threshold so have never had to register. I see what you are getting at regarding the possibility that the work done for the non-UK company might be outside the scope of VAT. I'll look into that further as it might be an easy solution although it suspect it may become complicated as I try to understand the regulations. Much appreciated.

FlappingAround

https://forums.moneysavingexpert.com/discussion/comment/82012343#Comment_82012343

I use the standard rules. A friend helped me set things up at the outset and I've just kept it the same since then. I've never been registered for VAT so there is no VAT on the sales invoices I sent to the company. I keep a record of invoices sent out so I can see if I'm getting close to the threshold If I do get close I stop working for a while to do other things I enjoy.

With regard to the last part of your post, sorry I have presented it in a confusing way. I charge the going hourly rate for the work that I do. It is pretty specialised. The cost of actually running the company are very low. A bit of insurance, mobile phone, new laptop every five years mean that once I've taken a salary (equal to the personal allowance) and paid corporation tax there is enough for me to live on and be happy by taking dividends. I hope that makes a bit more sense and appreciate your reply.

FlappingAround

https://forums.moneysavingexpert.com/discussion/comment/82012367#Comment_82012367

Thank you for the follow up post. To clarify, I have never been registered for VAT so it has never been charged on any sales invoices I have issued.

With regard to the OP question, the company is currently under the control of administrators. Their recent report to creditors showed that the company has liabilities which are approximately 15 times more that its assets. It also indicated that some of the creditors are secured - I'm not, and will be way down the pecking order, so will almost certainly receive nothing. I've waited until the administrators report was issued so I could be more certain of the likely outcome and what issues it presented for me.

Grumpy_chap

The way I understand this is:

- The OP is not yet VAT registered and hopes to avoid the need to become VAT registered.

- The OP raised the invoice for £30k in 2025 (?)

- The OP has raised other invoices for the value of £80k

- The OP now realises that the rolling 12-month turnover will exceed the VAT-registration threshold

- The invoice for £30k will never be paid, so the OP wants to raise a negative value invoice to reduce the turnover in the accounts by the £30k and, hence, avoid the 12-month turnover exceeding the VAT-registration threshold.

That negative value invoice to write-down the bad debt is fine and needs to be done at some point so that CT is not due on the value that will never be received.

However, if the OP's customers are businesses then it might just be simpler to register for VAT.

uknick

Doh!! Sorry OP I did the classic and answered the exam question as I wanted to and not as the question asked. I completely missed the fact you aren't VAT registered.

As @Grumpy_chap says, I'd cancel the invoice in your books by raising an internal credit note.

martindow

A lot of accountants offer a free initial 30 minute consultation. You need to keep them to the point as part of the session may be taken up with their sales pitch. It could be worth asking one or two your specific question and how to deal with it and also consider whether to use one for a while or permanently.

FlappingAround

https://forums.moneysavingexpert.com/discussion/comment/82012783#Comment_82012783

Thank you Grumpy Chap. The negative value invoice looks to be the ideal solution. Much appreciated!