How to manually write off customer invoices to bad debt

Summary

How to manually write-off customer invoices to bad debt in Sage 50 Accounts.

Description

NOTE: This article applies to the Standard VAT scheme. See our alternative article to write off customer invoices to bad debt on the VAT Cash Accounting scheme.

If customers are unable to pay their invoices due to liquidation, insolvency or dispute you can write these off. You record a bad debt write-off in Sage 50 Accounts.

Use the Write Off, Refunds and Returns wizard for base currency write-offs. Follow the steps in this article for foreign transactions or manual write-offs.

TIP: The non-vatable tax code, T9, excludes transactions from the VAT Return. To check your non-vatable tax code go to Settings then Company Preferences, select VAT, then select Parameters.

Resolution

Follow these steps to write off customer invoices to bad debt manually.

Bad Debt Relief conditions

HMRC states that you can claim back VAT under certain circumstances, such as:

  • You accounted for the VAT on the supplies and paid it to HMRC
  • You wrote off the debt in your VAT accounts and transferred it to a bad debt account
  • The debt remained unpaid for six months after the payment due date or the supply date, whichever is later

For more details on other conditions, contact HMRC or visit their website at http://www.hmrc.gov.uk

Create a Bad Debt Write Off nominal code

When using Sage's default nominal structure, you'll have a Bad Debt Write Off nominal code 8100. If you've deleted this account, or created a different nominal structure, create one before proceeding.

  1. Go to Nominal codes then select New/edit.
  2. Complete the Nominal Record as required, for example:
    N/C

    Enter the nominal code number to use for bad debt write-off.

    NOTE: This code is to be within the overheads section of the profit and loss. The range is 8100 - 8199 in the default chart of accounts.
    Name Enter the name of the account, for example, Bad Debt Write Off.
  3. Select Save then Close.

Write off a sales invoice

In the following example, the customer invoice is 120.00, including VAT at 20%. The debt is unpaid and you can write it off.

  1. Go to Customers then select Batch credit.
  2. Enter the details on the Batch Customer Credits window, for example:
    A/C Date Credit No N/C Details Net T/C VAT
    BROWN Write-Off Date BADDBT 8100 Write-Off 120.00 T9 0.00
  3. Select Save then Close.

TIP:  Adjust an invoice posted against a project by posting a project only charge for the net amount.  

Once the write off is complete, you can allocate the credit to the invoice to clear the outstanding debt.

Reclaim VAT if you qualify for Bad Debt Relief later

In the following example, the invoice is 120.00, including VAT at 20%. The write off was 30 June so the transaction qualifies for Bad Debt Relief from 31 December.

  1. Go to Nominal codes then select Journal entry.
  2. Enter a date and reference for the journal, then enter the VAT reclaim information, for example:
    N/C Name Details T/C Debit Credit
    2201 Purchase Tax Control Account Bad Debt Relief T1 20.00 0.00
    8100 Bad Debt Write Off Bad Debt Relief T9 0.00 20.00
    The journal date must be after the six-month period to satisfy HMRC rules, as explained in the Bad Debt Relief Conditions section.
  3. Click Save then click Close.

You've now posted the journal to reclaim the VAT, updating box 4 of the VAT return for the period as required by HMRC.

Solution Properties

Solution ID
200427112156531
Last Modified Date
Fri Jan 10 17:05:58 UTC 2025
Attributes
Product Details
Modules: Customers
Modules: Suppliers
Modules: Contact Management
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