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52
Bad Debt VAT Relief: Notice 700/18
Businesses which operate within the EU and VAT registered, may be able to claim VAT bad debt relief.
Note: All examples shown on this page use standard VAT rate at 17.50% (VAT fraction 7/47). This figure should be replaced
with the appropriate rate when calculating your relief.
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If you make supplies of goods or services to a customer but you are not paid you may be able to claim relief from VAT on bad
debts you have incurred.
This notice explains:-
- When you are entitled to this relief; and
- How to claim it.
Also, you may have to repay VAT you have claimed if you have received supplies of goods or services which you have not
paid for.
This notice also explains:-
- When you will be required to repay input tax; and
- How you will be required to repay it.
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With effect from 1st January 2003 there were major changes made to the way the bad debt relief scheme operates, this notice has
been re-written to explain these changes and how it works for supplies made prior to, and on or after this date.
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Anyone registered for VAT who has made supplies of goods or services to a customer for which they have not been paid, and
anyone who has received a supply of goods or services and has not made payments for the supplies.
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| The law that governs the claiming of bad debt relief is: |
|---|
| The VAT Act 1994 |
- Section 36; and
- Section 26A which covers the repayment of input tax when a
customer fails to pay for supplies received within six months of the relevant date
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| The VAT Regulations 1995 | Parts XIX, and XIXA (XIXB as of 1st January 2003) |
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Since the introduction of bad debt relief there have been various changes made to its availability and the way it
operates. For supplies made between 1st October 1978 and 26th July 1990, relief was only available for suppliers when their
customers became formally insolvent. This scheme has now been withdrawn, but if you think you would have been able to claim
relief under it, you should apply to your local VAT Business Advice Centre who will consider allowing your claim administratively.
In 1990, a new scheme was introduced for supplies made after 1st April 1989. This scheme has been subject to various
amendments since its introduction. From 1st January 2003, further changes to this scheme have taken effect. This
notice explains how the scheme works for supplies made prior to, and on or after, 1st January 2003.
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If you have made supplies to your customers on or after 1st October 1989 and have not been paid, you can claim relief from the VAT on
bad debts for the goods or services that you have supplied as long as you meet all the conditions. You may claim relief
whether the payment due to you was in money or in goods or services to be provided to you in a barter arrangement.
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- You must already have accounted for the VAT on the supplies and paid it to Customs and Excise.
- You must have written off the debt in your day to day VAT accounts and transferred it to a separate bad debt account.
- The value of the supply must not be more than the customary selling price.
- The debt must not have been paid, sold or factored under a valid legal assignment. See How Much Can I Claim? (paragraph 3.12)
- The debt must have remained unpaid for a period of six months after the later of the time payment was due and payable
and the date of the supply; and
- If the goods were supplied before 19th March 1997, ownership must have passed to your customer, or through the customer
to a third party.
- For supplies made to a VAT registered customer between 26th November 1996 and 31st December 2002, you must send a notice to
them. A copy of the notice must also be retained. See What Should The Notification Look Like? for an example.
Note: If you account for tax under the cash accounting scheme (see Notice 731 Cash accounting) or under
one of the retail schemes (see Notice 727 Retail schemes) which allows you to adjust your daily gross takings for opening and
closing debtors, you are only paying VAT on the amounts you have actually received from customers, so bad debt relief is
unnecessary.
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You must wait at least six months from the later of when payment was due and payable or the date of supply. You cannot
claim on a return for an accounting period earlier than the one in which you become entitled to the relief.
For supplies made after 1st May 1997, you must claim within three years and six months of the later of, when payment is due and
payable or the date of supply.
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To claim a refund you should include the amount of the VAT you are claiming in Box 4 of your VAT return, which covers the date when
you fulfil the conditions to make a claim.
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Yes, when you can claim a refund you must keep:-
- A copy of the VAT invoices for the supplies on which you are claiming a refund. (If you did not issue a VAT
invoice you must have a document showing the equivalent information.); and
- A separate bad debt account showing the: -
- Amount you have written off as a bad debt.
- Amount of VAT you wish to claim as bad debt relief.
- VAT period in which you have claimed a refund.
- Total amount of VAT charged on each supply.
- VAT period in which you originally accounted for.
- Payment received for each supply.
- Name of your customer; and
- Date and number of the invoice to which the bad debt relates. (If you did not issue an invoice you
must include sufficient information to allow the time and type of the supply to be readily identified.)
- A copy of any notice issued (see paragraphs 2.6 and 2.7 below).
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Changes announced in the 2002 Budget remove the requirement for traders to issue notification letters for supplies made
after 31st December 2002.
However, claims covering supplies made between 26th November 1996 and 31st December 2002 to a VAT registered customer require
a notification letter to be sent. You must send a notice to your customer within seven days from the date you
make your claim. The date a claim is made is the date you send Customs the VAT return including the claim.
The notice must contain all the following information: -
- The date of issue of the notice.
- The date of your claim to bad debt relief.
- The date and number of any VAT invoice issued for each supply to your customer which is included in your claim.
- For each relevant supply the amount which has been written off as a bad debt; and
The amount of the claim, except where the claim is for a supply accounted for under a margin
scheme. See Frequently Asked Questions (paragraph 5.7).
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Your notice need not follow this format but all the details must be included. The notice may form part of your
existing debt recovery procedures and the details can be added to correspondence you would ordinarily send to your
debtor. Or you can send it separately if you prefer.
| Example Of Notification Letter |
|---|
To: XYZ Ltd From: ABC Ltd
Notification of a claim for VAT bad debt relief
I hereby notify you of a claim for VAT bad debt relief in respect of the following supply/supplies made to
you for which payment has not been received.
Date of this notice: 25th August 2002
Invoice date: 10th January 2002
Invoice No: 5/02
Total amount due: £117.50
Bad debt relief claim: £17.50
Date of claim: 21st August 2002
You are now required to repay any VAT claimed on these supplies to Customs and Excise until
such time as payment is made.
This notification has been issued to comply with the VAT Regulations 1995 (as amended). Payment
including VAT in respect of the supplies remains due and should be made forthwith.
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After making the claim you must keep all the records listed in paragraph 2.5 for 4 years from the date you make your
claim. This requirement does not alter the standard requirement to retain records for six years –
see Notice 700 The VAT guide for details.
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Your entitlement to bad debt relief is based upon the outstanding amount in respect of the supplies concerned. In
the case of a single supply for which you have received no payment your claim will be for the amount of VAT that you accounted
for and paid.
If you have received a part payment for the debt, you can only claim a refund on the VAT relating to the amount that is
still unpaid.
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Payments should be allocated to the earliest supply made unless the customer specifies that a payment is for a particular
supply and pays for that supply in full.
Notice 700 The VAT guide provides guidance on establishing the time of supply.
This method of attribution allows for a fair distribution of payments across supplies with varying liabilities, e.g.
standard-rated, zero-rated and exempt supplies.
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Example of attribution of payments:-
You have made the following supplies to your customer:-
| Supply No | Date of supply & when payment was due | VAT-exclusive cost (£) | VAT (£) | VAT-inclusive cost (£) |
|---|
| 1 | 30th June 2002 | 1,000 | Zero-rated | 1,000 |
| 2 | 28th July 2002 | 1,000 | 175 | 1,175 |
| 3 | 25th August 2002 | 2,000 | 350 | 2,350 |
| 4 | 29th September 2002 | 350 | Exempt | 350 |
| 5 | 27th October 2002 | 800 | 140 | 940 |
| 6 | 24th November 2002 | 3000 | 525 | 3,525 |
| | | 8,150 | 1,190 | 9,340 |
You have received payments totalling £3,500 for these supplies, so the debt is:-
Total value of supplies = £9,340
Payment received = £3,500
Debt = £5,840
As the payment doesn't relate to any particular supply it is treated as relating to the earliest
supplies. Therefore payment is treated as made in full for supplies 1, 2 and for £1325 of supply 3 (the difference
between the totals of supplies 1 and 2 and the payment of £3,500). The debt outstanding for supply 3 is therefore
£1025. The VAT included in that outstanding amount is calculated using the VAT fraction as
£1025 x 7/47 = £152.66.
Bad debt relief can therefore be claimed on the following supplies:-
| Supply | VAT-inclusive amount (£) | VAT (£) |
|---|
| Part of 3 | 1,025 | 152.66 |
| 4 | 350 | Nil |
| 5 | 940 | 140.00 |
| 6 | 3,525 | 525.00 |
| | 5,840 | 817.66 |
The total bad debt relief claim is £817.66
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If you made a number of supplies on the same day, you should add up, separately, the VAT-inclusive amount of the supplies
and the VAT included in those amounts. You then treat the supplies as one supply when working out the relief.
Using the same figures as in the example in paragraph 3.3 but where supplies 1, 2 and 3 are made on the same day the bad
debt relief should be calculated as follows:-
| Calculation |
|---|
| VAT-inclusive value of supplies 1, 2 and 3 | £4,525 (VAT included is £525) |
| Payment received | £3,500 |
| Debt outstanding on supplies 1, 2 and 3 | £1,025 |
To calculate the bad debt relief claimable on this debt you should apply the following calculation:-
| The balance of the debt X (amount of VAT in supplies 1, 2 and 3) |
|
| Total VAT-inclusive value of supplies 1,2 and 3 |
Therefore: £1,025 x £525/£4525 = £118.92 VAT
| So the total bad debt relief claim will be: |
|---|
| VAT in supplies 4, 5 and 6 | £665.00 |
| Proportion of VAT claimable on supplies 1, 2 and 3 | £118.92 |
| Total | £783.92 |
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Bad Debt Relief can be claimed on supplies of goods made by way of hire purchase, conditional sale or credit sale where
the customer has defaulted.
Such transactions involve two supplies, a supply of goods and a separate supply of associated finance. Unless
the supplier seeks an agreement with Customs to treat the supply of finance as occurring at the same time as the supply of
goods, then the supply of goods occurs first.
This would normally mean that all payments received would be first applied to the goods and only when the goods are fully
paid for would any payments be attributed to the supply of finance. However particular rules apply for businesses
that supply goods and finance in this way.
Suppliers attribute each payment received, upon which interest is charged, to goods and to finance in the same ratio as
the total cost of goods and the total cost of finance to the customer. This calculation should exclude any deposit
payment which should be wholly allocated to the goods.
Example:-
If a car cost £8,000 and the interest over the life of the agreement is £2,000, with nil deposit, each payment can be
allocated 80% goods and 20% interest.
If the same car was financed in the following way, deposit is £1,000, and the balance of £7,000 attracts interest of £1750.
The deposit is attributed wholly to the goods.
The remaining payments for the goods and finance total £8750.
Payments after the deposit are split 80% goods and 20% interest.
Where the agreement allows for a variable rate of interest, you should attribute the payment as if the rate at the start
of the agreement remained fixed for the whole of the agreement.
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When goods are supplied with finance the seller may have the right to repossess the goods if the customer does not make
the payments required by the agreement at the right time. The proceeds from the sale of goods in this situation
should be treated as a payment from the customer and any relief should be based upon the remaining amount unpaid.
Generally the sale of repossessed goods are not treated as a supply. There are however exceptions. If
the condition of repossessed goods is changed prior to their sale the re-sale of those goods is subject to VAT. If
a car is repossessed from a customer who has been entitled to reclaim input tax the re-sale of the car is subject to VAT.
Where the disposal of the repossessed goods are subject to VAT on the full selling price, you do not have to deduct the
proceeds of the disposal from the outstanding debt of their customer, when claiming bad debt relief. Only the
payments made by the customer have to be deducted.
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This example shows you how to work out bad debt relief where you owe a sum of money to the debtor, which you are able to
set off against monies the debtor owes you (sometimes called a mutual debt).
A bad debt has arisen relating to a supply for which you charged £705 (£600 + £105 VAT). At the time you have
written off the debt, you owe the debtor £115.
Amount of the debt is £705 - £115 = £590.
To work out how much VAT is included in the debt, multiply by the 'VAT fraction'.
So you can claim bad debt relief of £590 x 7/47 (VAT at 17.5%) = £87.87
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If you hold an enforceable security against the debt you must reduce the amount you claim bad debt relief on by the value
of that security. If you hold a security which can't be enforced you may write off the full amount of the debt
and base your claim to relief on that amount.
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If you pay a premium for insurance against bad debts, payment by the insurers doesn't affect your entitlement to
relief.
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If you receive payment, in full or in part, from a guarantor or other person (e.g. a director of the debtor company),
entitlement to relief is reduced by the amount paid. If full payment is made by the guarantor or third party
there is no entitlement to bad debt relief.
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If you make a supply to a debtor who is insured for the costs of that supply (for example when a garage repairs a damaged
vehicle), for convenience the insurer may pay you direct. If the insured is VAT registered the VAT exclusive amount
is usually paid. If the customer does not pay you the VAT element, you can only claim relief on the actual balance
written off. Any payment is to be treated as in paragraph 3.2.
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Some businesses employ factoring companies to improve their cash flow. If debts are factored bad debt relief is
not available where an assignment of the debt is absolute (that is where there is no provision for the reassignment of the debt
in the contract).
Where there is provision for the reassignment of a debt, bad debt relief will be available once the debt is reassigned to
the trader. No bad debt relief can be available during the period in which the debt remains assigned to the factor.
If you receive a payment from the factor for the purchase of the debts, this is considered to be for an exempt supply of
finance and therefore will be disregarded for the purposes of bad debt relief.
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If your customer refuses to pay the VAT charged, or you did not charge VAT when the supplies were made but issued
supplementary invoices to recover the VAT from your customer, the claim to relief is limited to the VAT element of the
total debt. For example if you originally charged £100 which your customer paid, and you unsuccessfully attempt
to recover the £17.50 VAT charge originally omitted, you are only entitled to claim the VAT fraction
of £17.50 as bad debt relief.
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If you have claimed a refund under this scheme and you later receive a payment for the supplies, you must repay to us the
VAT element included in the payment. All payments you receive for the supply or supplies must be shown in your
separate bad debt account. When you are repaying all or part of your refund, put the amount you are repaying in
Box 1 of your VAT return for the period in which you received the payment.
If you are no longer registered for VAT and therefore do not make VAT returns, you must still repay all or part of the
refund. Contact your local VAT office for guidance.
If you are insured for the VAT-inclusive amount of the debt, and your insurer pays you, your bad debt relief entitlement
is not affected and you may still claim for the full amount.
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Suppose you sold goods for £100.00 (plus VAT) for which you received no payment by the relevant date and claimed bad debt
relief (assuming the usual conditions were met).
If you subsequently received £75.00 from your customer for the goods, you must repay to Customs and Excise the VAT element
of that payment.
You calculate the amount of the repayment as follows:-
| Amount Of Claim x Payment Received |
|
| Consideration Outstanding When Claim Made |
If the supply was standard-rated this would result in the following calculation.
Gross value of supply is £117.50 and Bad Debt Relief amount is £17.50
| £17.50 x £75 | = £11.17 |
|
| £117.50 |
Thus you should add £11.17 to Box 1 of your VAT return.
If the supply was at the reduced rate of 5% this would result in the following calculation.
Gross value of the supply is £105.00 and Bad Debt Relief amount is £5.00
| £5.00 x £75 | = £3.57 |
|
| £105.00 |
Thus you should add £3.57 to Box 1 of your VAT return.
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There are different rules depending upon when the supply was made to you. For supplies after 26th November 1996
but before 1st January 2003 you are only required to repay input tax if you receive a notification that your supplier has made
a claim for bad debt relief See Claiming Bad Debt Relief (paragraph 2.7).
For supplies on or after 1st January 2003 you are required to repay input tax if you do not pay for the supplies within
six months of the relevant date. Your suppliers will not be required to issue a notification so you will need to
monitor the time you take to pay your suppliers.
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The relevant date is:-
- The date of the supply, or if later;
- The due date for payment
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If your supplier allows you time to pay, for example 30 or 60 days, then you are not required to repay any input tax until
six months from this later date. In the absence of any separate agreement you can use the invoice date as the due
date for payment and so use this as the time at which the six months starts.
The only exception is any case, (which is expected to occur rarely) where the invoice is not issued within fourteen days
of the date on which the goods were supplied or service performed; and where the due date for payment falls before the date on
which the invoice is ultimately issued. In this instance the input tax will become repayable six months after the
date on which the goods were supplied or service performed, or (if later) the date when payment was due.
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This will depend upon whether your supplier agrees to extend the due date for payment of the amount in
dispute. If he agrees to extend the date then he will not be able to claim bad debt relief until six months after
the extended date and equally you will not be required to make a repayment until six months after that date.
If your supplier does not agree to such a change the repayment of input tax will be required six months from the relevant
date, as set out above. You will only be required to repay the unpaid element. Should you subsequently
agree to pay the balance your entitlement to input tax will be restored.
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The same methods as outlined in calculating how much you can claim are used in calculating how much of a repayment you
are required to make. The repayment is based upon the unpaid amount at the 'relevant date'. If
you have been unable to claim the full amount of VAT charged by your supplier – for example because the supplies were used
partly for a non-business or exempt activity the repayment will be based upon the amount of VAT originally deducted.
Example:-
Supply received £1000.00 + £175.00 VAT = total £1175.00
By the time of the relevant date you have only paid £500.00
Unpaid amount: £1175.00 - £500.00 = £675.00
Repayment Due:-
- If business originally entitled to deduct £175.00
(£175.00 x 675.00) ÷ 1175.00 = £100.53
- If business originally entitled to deduct 50% of the VAT charged (£87.50)
(£87.50 x 675.00) ÷ 1175.00 = £50.26
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You should make a negative entry in the VAT allowable part of your VAT account, and account for the repayment on the
return covering the date when repayment became due.
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If you have repaid input tax claimed following a supplier's claim for bad debt relief and then you make payment for
the supply, you can reclaim the input tax, in proportion to the payment made, subject to the normal rules. Reclaim
the input tax by including it in Box 4 of your VAT return in the accounting period in which the payment is made.
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If you have taken over a business and the VAT registration number of that business using Form VAT 68, you acquire the
obligations of the seller to repay input tax. That is, you must repay to us the VAT claimed by the seller on
supplies where bad debt relief has been claimed because the supplier has not been paid. Notice 700/9 Transfer of a business
as a going concern has more information about the transfer of business as a going concern.
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As a result of an Extra Statutory Concession (see Notice 48), the requirement to repay input tax does not apply to
businesses where an insolvency procedure has commenced after the date of the supply but before the notification is
received. This does not affect the requirement to issue a notice when claiming bad debt relief (where your
supplies are between 27th November 1997 and 31st December 2002), either when the claimant is insolvent, or if the notice is
to an insolvent business.
For supplies made on or after 1st January 2003 the concession is revised so that repayment of input tax will not be
required where the supply was made prior to the insolvency procedure commencing but the requirement to repay input tax
occurs after.
Insolvent businesses are however required to repay any bad debt relief claimed, should their debtors make subsequent
repayments.
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You can only claim relief if you were the actual supplier of the goods or services. Where a business is
transferred, the purchaser cannot claim bad debt relief on supplies made before the transfer because the purchaser did
not make the supplies. However, as of 1st May 1997 there is an exception to this rule where the purchaser
also takes over the VAT registration of the seller (using the Form VAT 68). In these circumstances the purchaser acquires
the seller's entitlement to bad debt relief on supplies made by the seller.
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The rules for claiming bad debt relief on goods supplied under an agreement with a clause reserving title until they
have been paid for (known as a Romalpa clause) changed from 19th March 1997. If you supplied goods before that date,
you can only claim bad debt relief if you have sent your customer a statement formally giving up your rights under the
clause. For supplies made on or after 19th March 1997, the requirement that title to the goods must have passed no
longer applies. This change allows claims for bad debt relief for supplies of goods on hire purchase and other
reservation of title agreements without the requirement to formally give up the rights to title under the agreement.
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Yes. But you must have all the information detailed in Claiming Bad Debt Relief (paragraphs 2.2 and 2.7) and write to your local VAT
office giving:-
- Your former VAT registration number
- The name and address of the debtor(s)
- The amount of refund you wish to claim
- Copies of other supporting evidence (for example, invoices)
- Proof that the debt has remained unpaid for 6 months from the date payment became due and payable, or the time of supply
if later; and
- Proof that you possess a separate bad debt ledger
For supplies made to VAT registered customers after 26th November 1996 and before 1st January 2003, you must send a notice to
the purchaser of the supply for which the claim is made, within seven days of making your claim. The notice must
contain the information set out in Claiming Bad Debt Relief (paragraph 2.6), and you must retain a copy of it.
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If you are registered under a group registration for VAT purposes, each member must keep its own separate bad debt record
for debts written off. The representative member of the group will claim any refund on behalf of each member while
they are in the VAT group. Bad debt relief claims for supplies made by a group member who has left the group before
the time a claim can be made, are proper to the former group member and not to the representative member of the group.
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If you account for VAT using annual returns, relief can be claimed on debts over six months old on the same return in which
the supply was accounted for. Debts over six months old are those where six months has elapsed from when payment
is due or payable or, if later, six months from the date of supply.
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No. You may not issue a credit note simply because your customer has not paid you for your supply. You
may only issue a credit note where there is a genuine mistake or overcharge or an agreed reduction in the value of your supply.
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As of 1st May 1997 bad debt relief can be claimed on supplies made under margin schemes, subject to a maximum of the VAT on the
margin. If the debt is equal to or less than the profit margin, bad debt relief may be claimed on the VAT fraction
of the debt. If the debt is greater than the profit margin, bad debt relief is limited to the VAT fraction of the
profit margin since this is the amount of VAT that will have been paid to Customs. The notice to be sent to your
customer following a claim, as detailed in Claiming Bad Debt Relief (paragraph 2.6), does not need to show a breakdown of the VAT for supplies made
under a margin scheme. Paragraph 5.8 below provides an example of the amount of bad debt relief that will be allowable
for goods sold under a margin scheme.
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| If for example you: |
|---|
| Purchased goods for | £400.00 |
| And sold them for | £500.00 |
| Margin on which VAT is paid to Customs | £100.00 |
| If your customer pays you | £350.00 |
| Then the debt is | £150.00 which is greater than the margin |
| So bad debt relief is | VAT fraction of £100.00 (margin) |
| But if customer pays | £450.00 |
| Then the debt is | £50.00 |
| So bad debt relief is | VAT fraction of £50 (debt) |
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The main change in this update is an amendment to How Much Can I Claim? (paragraph 3.5).
Replace Para 3.5 With The Following:-
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Bad debt relief can be claimed on supplies of goods made by hire purchase, conditional sale or credit sale where the
customer has defaulted.
Such transactions involve two supplies, a supply of goods and a separate supply of associated finance. Unless
the supplier seeks an agreement with HM Revenue & Customs to treat the supply of finance as occurring at the same time as
the supply of goods, then the supply of goods occurs first.
This would normally mean that all payments received would be first applied to the goods and only when the goods are fully
paid for would any payments be attributed to the supply of finance. However particular rules apply for businesses
that supply goods and finance in this way.
For agreements entered into before 1st September 2006 suppliers must attribute each payment received, upon which interest
is charged, to goods and to finance in the same ratio as the total cost of goods and the total cost of finance to the
customer. This calculation should exclude any deposit payment which should be wholly allocated to the
goods. This is the Old Method.
Example of the Old Method
If Company A supplies a car to a consumer on hire purchase terms, over one year:-
| Car Price (including VAT) | £10,000 |
| Deposit | £1,000 |
| Amount financed | £9,000 |
| Total interest (A) | £1,800 |
| Total amount payable (B) | £10,800 |
| Monthly payments | £900.00 |
The customer pays the deposit and three monthly payments and then defaults. The payments should be attributed
as follows:-
| Payments made (P) | £2,700 |
| Interest element of instalments received = P x (A/B) | £2,700 x £1,800/£10,800 = £450 |
| Goods value = £2,700 less £450 | £2,250 |
| Net outstanding = amount financed (£9,000) less goods value (£2,250) | £6,750 |
| BDR claim amount | £6,750 x 7/47 = £1,005.32 |
The New Method
As of 1st March 2007 the method used to calculate the attribution of payments was changed so that it better reflects the
actual commercial attribution.
For supplies of goods made before 1st September 2006 the old method of calculation must be used.
For supplies of goods made between 1st September 2006 and 31st August 2007 suppliers may choose either method.
For supplies of goods made on or after 1st September 2007 the new method of calculation must be used.
The new method requires suppliers to use figures which are derived from their existing commercial records. These
records should reflect the commercial apportionment made between capital and interest, and are likely to be based on an
actuarial or Rule of 78 accounting method. If the apportionment has been calculated correctly within the records,
then applying the new method of calculation will result in the same figure and this can then be used as the basis of the bad
debt relief claim.
Example of the New Method
Note: for the purpose of the following example, assumed figures have been used for
the rebate of interest figure and the capital value unpaid figure.
Payments made on or before the termination of the agreement must be attributed to the supply of credit by multiplying the
amount of the payment by the fraction A/B and the balance is attributed to the supply of goods.
| Calculation of 'A' |
|---|
| Total charge for interest paid under the agreement | £1,800.00 |
| LESS rebate of interest granted | (£1,038.46) |
| LESS interest attributable to any unpaid instalments | (£ 0.00) |
| (£1,038.46) |
| Total Interest Due | £761.54 |
| Calculation of 'B' |
|---|
Total amount payable under the agreement
(total for the goods + total of 'A') (£10,000 + £761.54) | £10,761.54 |
| LESS any reduction as a result of termination | (£0.00) |
LESS amounts on which interest was not charged
(e.g. fees, deposits) | (£1,000.00) |
| LESS any capital value unpaid at the time of termination | (£7,061.54) |
| (£8,061.54) |
| Total Amount Payable | £2,700.00 |
The calculation then continues:-
Payments made on or before termination (P)
x (A/B) = Interest element (I) | £2,700 x £761.54 / £2,700
= £761.54 |
Payments (P) minus interest element (I)
= Goods value (G) | £2,700 - £761.54
= £1,938.46 |
Amount financed minus the goods value (G)
= bad debt relief amount | £9,000 - £1,938.46
= £7,061.54 |
Bad debt relief amount x 7/47ths
= bad debt relief claim. | £7,061.54 x 7/47 =
£1,051.72 |
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