An entity cannot recover the earlier claimed input VAT amount if the following happens:
- The goods / services were received by the entity.
- After more than 6 months from the purchase date, the entity still hasn't paid.
- The supplier had written off the entity's debt, thus decreased their output VAT accrued and notified the entity about it.
How to process
Where: Purchasing > Purchasing Documents > Debit Notes
On the list of existing debit notes, click Create to open a new debit note (with Mutual Settlements Adjustment as the transaction type) for the amount of the written off debt. Make sure you select the Advance check box for the bad debt on the Documents tab. For details, refer to Creating a Debit Note.
Where: Taxes > Tax Documents > Input VAT Transactions
Create an Input VAT Transaction to register the decrease in the recoverable VAT.
- Click Create to create a new Input VAT Transaction.
- In the Company box, select the supplier.
- In the Transaction Type field, select Bad Debt.
- In the Adjustment Type field, select Decrease.
- 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.
- Select the Decrease Recoverable VAT check box to decrease the recoverable taxable and VAT amounts.
- Optionally, in the Basis field, select the debit note with writeoff.
- Click Save to assign the number to this document.
- On the Inventory/Services tab, click Add to append a new line.
- In the Contents column enter any comment for the transaction, for instance Payables writeoff.
- In the Amount column, enter the written off amount about which the supplier has notified your company.
- In the VAT, % column, select the standard rate.
- Click Post to register the document in the system.
In the VAT Return document for the appropriate tax period, the adjusted VAT amount appears in row 9: Standard-Rated Expenses, the Adjustments column.