-Case 3. Adjusting input VAT when notified about written off bad debt

A company cannot recover the previously registered input VAT amount if the following happens:

• The supplier has decreased their output VAT accrued and notified the company about it
• The goods / services have been received by the company
• No payment was made after more than 6 months from the purchase date. 

How to process

Where: Purchasing > Purchasing Documents > Debit Notes

Create a Debit Note (with Mutual Settlements Adjustment  as the Transaction Type) for the amount of the written off debt. For details, see the Using Debit Notes section.

Where: Accounting > Value Added Tax > Input VAT Transactions

Create an Input VAT Transaction to register the decrease in the input VAT.

1. Click Create to create a new Input VAT Transaction.
2. In the Company box, select the supplier.
3. In the Transaction Type field, select Invoice Received.
4. In the Adjustment Type field, select Decrease.
5. Make sure the link below the fields contains Prices Include VAT. Otherwise, click the link to open the Prices and Currency dialog box, select the Prices Include VAT check box there, and close the dialog box.
6. Select the Decrease Recoverable VAT check box.
7. Click Save to assign the number to this document.
   
8. On the Inventory/Services tab, click Add to append a new line.
9. In the Contents column enter any comment for the transaction, for instance Payables writeoff.
10. In the Amount column, enter the written off amount about which the supplier has notified your company.
11. In the VAT, % column, select the standard rate.
    
12. Click Post to register the document in the system.

Where: Accounting > Value Added Tax > VAT Return

Update the VAT Return report for the appropriate tax period, make sure the adjusted VAT amount appears in row 9: Standard-Rated Expenses, in the Adjustments column.