How to manually write off a customer account

Summary

This guide explains how to write off a customer account in Sage 50 Accounts.

Description

Occasionally, you may want to write off all of the outstanding transactions on a customer's account, for example, if they cease trading. If this happens, the total balance on their account is transferred to a Bad Debt Write Off nominal code, this changes the debtors figure on the Balance Sheet report, and the amount written off is set against this year's profit and loss as an overhead.

NOTE: This article only applies if you're using the Standard VAT scheme. For further information about writing off invoices on the Cash Accounting scheme, please refer to this guide.

Sage Accounts has an automatic write off option available, for further information about this, please refer to this guide.

If you prefer to manually write off your customer accounts, then please follow the procedures in this article.

TIP: To improve the way you use Sage Accounts, the toolbar options vary with size of the software window you're using. You can also customise the toolbars to your individual preferences. The instructions in the help topics are based on the default toolbars. For more information, please refer to this guide.

Resolution

NOTE: The non-vatable tax code, T9 by default, is used when transactions aren't to appear on the VAT Return. To check your non-vatable tax code, open the Settings menu, choose Company Preferences then click the Parameters tab. The non-vatable tax code appears and, if necessary, can be amended by choosing a different tax code from the drop-down list.

Bad Debt Relief conditions

HMRC state that you're only eligible to claim back VAT under certain circumstances, such as:

You've already accounted for the VAT on the supplies and paid it to HMRC.
You've written off the debt in your day to day VAT accounts and transferred it to a separate bad debt account.
The debt has remained unpaid for a period of six months after the time payment is due and payable or, if later, six months after the date of the supply.

NOTE: There are other conditions you must satisfy, for further information about this, please refer to VAT Notice 700 / 18, available from HMRC or visit their website at http://www.hmrc.gov.uk

To create a Bad Debt Write Off nominal code

If you're using the Sage default nominal structure you should already have a nominal code for Bad Debt Write Off, 8100 by default. If you've deleted this account, or created your own nominal structure and not created a Bad Debt Write Off nominal code, you must create one before proceeding.

Nominal codes > New/edit.
Sage Accounts 2013 (v19) and 2014 (v20) - Company >Links pane > Nominal Ledger > Nominal Record.
Sage Accounts 2012 (v18) and below - Company >Links pane > Nominal Ledger > Record.

Complete the Nominal Record details as follows:

N/C	Enter the number you want to use for the Bad Debt Write Off nominal code, for example, 8100. Note: This should be within the Overheads section of the Profit and Loss report. If you're using the Sage default nominal structure, the new nominal code should be in the range of 8100 - 8199.
Name	Enter the name of the account, for example, Bad Debt Write Off.

N/C

Enter the number you want to use for the Bad Debt Write Off nominal code, for example, 8100.

Note: This should be within the Overheads section of the Profit and Loss report. If you're using the Sage default nominal structure, the new nominal code should be in the range of 8100 - 8199.

Name

Enter the name of the account, for example, Bad Debt Write Off.

2. Save > Close.

You've created your new Bad Debt Write Off nominal code. You should now check your Chart of Accounts, to ensure that the nominal code you've created is included within the correct section.

To check the balance on the customer's account

Open the Customers module then from the Customer list, make a note of the balance on the customer's account which is to be written off.

NOTE: You should check if this is a positive or negative balance.

You now need to post a transaction to change the balance on the customer's account to zero. If the balance on your customer's account was a positive figure, please proceed to the following section To post a bad debt sales credit. If the balance on your customer account was a negative figure, please proceed to the section To post a bad debt sales invoice later in this article.

To post a bad debt sales credit

NOTE: In this example, we're writing off customer account, Brown Ltd, who's a positive balance of 120.00. To correctly record the bad debt write off you must post the sales credit with a non-vatable tax code, then when appropriate post a journal to reclaim the VAT.

Customers > Batch credit.
Sage Accounts 2014 (v20) and below - Customers > Links pane > Batch Credit.
Enter the relevant information on the Batch Customer Credit 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
Save > Close.

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

You've posted the credit with a T9 tax code, if you subsequently need to reclaim any VAT, please refer to the section To reclaim VAT after writing off a positive balance later in this article.

You should now allocate all of the outstanding transactions on the customer's account. For further information about this, please refer to this guide.

To post a bad debt sales invoice

In this example, we're writing off customer account, Brown Ltd, which has a negative balance of 120.00 . To write this off you need to post the following transactions:

A sales invoice to increase the balance on the customer's account to zero.
A journal to repay the VAT - The 6 month Bad Debt Relief condition should be ignored when you're writing off a negative balance on a customer's account, therefore you should post the journal to correct your VAT Return at the same time that you post the sales invoice. For further information about this, you should contact the VAT Help Line.
NOTE: If the negative balance on the customer's account is as a result of a sales payment on account (SA) transaction, you only need to post the journal if you're on the VAT cash accounting scheme. If you're on standard VAT, no VAT is reclaimed from an SA transaction and you should not post a journal to repay VAT.

TIP: If your customer's transactions have been posted with different tax codes, you should calculate the relevant VAT amount that needs to be repaid.

To post the bad debt sales invoice

Customers > Batch invoice.
Sage Accounts 2014 (v20) and below - Customers > Links pane > Batch Invoice.
Enter the relevant information on the Batch Customer Invoices window to record the bad debt invoice, for example:
A/C Date Ref N/C Details Net T/C VAT
BROWN Write Off Date BadDbt 8100 Write Off 120.00 T9 0.00
Save > Close.

A/C	Date	Ref	N/C	Details	Net	T/C	VAT
BROWN	Write Off Date	BadDbt	8100	Write Off	120.00	T9	0.00

You've now posted the invoice to write off the debt. You now need to allocate all of the outstanding transactions on the customer's account. For further information this, please refer to article .

To post the journal to repay the VAT

Nominal codes > Journal entry.
Sage Accounts 2013 (v19) and 2014 (v20) - Company > Tasks pane > Journal Entry.
Sage Accounts 2012 (v18) and below - Company > Tasks pane > Journal.
Enter a date and reference for the journal, then enter the relevant details to repay the VAT, for example:
Note: You should use the date the account is being written off.
N/C Name Details T/C Debit Credit
8100 Bad Debt Write Off Bad Debt T9 20.00 0.00
2200 Sales Tax Control Account Bad Debt T1 0.00 20.00

N/C	Name	Details	T/C	Debit	Credit
8100	Bad Debt Write Off	Bad Debt	T9	20.00	0.00
2200	Sales Tax Control Account	Bad Debt	T1	0.00	20.00

Save > Close.

You've now posted the journal to repay the VAT.

To reclaim VAT after writing off a positive balance

Sometimes, you may want to write off an account that doesn't yet qualify for Bad Debt Relief, then post the transactions to reclaim the VAT at a later date.

To reclaim the VAT after writing off a positive balance using the non-vatable tax code, T9 by default, you need to post a journal to move the VAT amount from the Bad Debt Write Off nominal code to the Purchase Tax Control Account.

In the following example, an account with a balance of 120.00 , inc VAT at 20% , was written off on June 30, the write off qualifies for Bad Debt Relief as of December 31.

This section assumes that you've posted the write off credit as detailed in the section To post a bad debt sales credit earlier in this article.

Nominal codes > Journal entry.
Sage Accounts 2013 (v19) and 2014 (v20) - Company > Tasks pane > Journal Entry.
Sage Accounts 2012 (v18) and below - Company > Tasks pane > Journal.
Enter a date and reference then enter the relevant details to reclaim the VAT, 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
Save > Close.

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

You've now posted the journal to reclaim the VAT, this appears in box 4 on your next VAT Return, as required by HMRC. The net amount of the credit still appears in the Bad Debt nominal code, 8100 by default.

You now need to allocate the credit to the invoice to clear the outstanding transactions. For further information about this, please refer to this guide.

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Solution Properties

Solution ID: 200427112200771
Last Modified Date: Fri Nov 18 13:04:49 UTC 2022
Attributes: Product Details
Modules: Customers
Modules: Suppliers
Modules: Contact Management
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