Value Added Tax Act 1994, section 36

Bad debts

Part II Reliefs, exemptions and repayments

(1)Subsection (2) below applies where—

(a)F280a person has supplied goods or services . . . and has accounted for and paid VAT on the supply,

(b)the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt, and

(c)a period of 6 months (beginning with the date of the supply) has elapsed.

(2)Subject to the following provisions of this section and to regulations under it the person shall be entitled, on making a claim to the Commissioners, to a refund of the amount of VAT chargeable by reference to the outstanding amount.

[F281 (3) In subsection (2) above “the outstanding amount” means—

(a)if at the time of the claim no part of the consideration written off in the claimant’s accounts as a bad debt has been received, an amount equal to the amount of the consideration so written off;

(b)if at that time any part of the consideration so written off has been received, an amount by which that part is exceeded by the amount of the consideration written off;

and in this subsection “received” means received either by the claimant or by a person to whom has been assigned a right to receive the whole or any part of the consideration written off. F281]

[F282 (3A)For the purposes of this section, where the whole or any part of the consideration for the supply does not consist of money, the amount in money that shall be taken to represent any non-monetary part of the consideration shall be so much of the amount made up of—

(a)the value of the supply, and

(b)the VAT charged on the supply,

as is attributable to the non-monetary consideration in question.F282]

(4)A person shall not be entitled to a refund under subsection (2) above unless—

(a)F283the value of the supply is equal to or less than its open market value, . . .

F283(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4A)F284. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)Regulations under this section may—

(a)require a claim to be made at such time and in such form and manner as may be specified by or under the regulations;

(b)require a claim to be evidenced and quantified by reference to such records and other documents as may be so specified;

(c)require the claimant to keep, for such period and in such form and manner as may be so specified, those records and documents and a record of such information relating to the claim and to [F285anything subsequently receivedF285] by way of consideration as may be so specified;

(d)require the repayment of a refund allowed under this section where any requirement of the regulations is not complied with;

(e)require the repayment of the whole or, as the case may be, an appropriate part of a refund allowed under this section [F286where any part (or further part) of the consideration written off in the claimant’s accounts as a bad debt is subsequently received either by the claimant or, except in such circumstances as may be prescribed, by a person to whom has been assigned a right to receive the whole or any part of that consideration;F286]

(ea)F287. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f)include such supplementary, incidental, consequential or transitional provisions as appear to the Commissioners to be necessary or expedient for the purposes of this section;

(g)make different provision for different circumstances.

(6)The provisions which may be included in regulations by virtue of subsection (5)(f) above may include rules for ascertaining—

(a)whether, when and to what extent consideration is to be taken to have been written off in accounts as a bad debt;

(b)whether [F288anything receivedF288] is to be taken as received by way of consideration for a particular supply;

(c)whether, and to what extent, [F288anything receivedF288] is to be taken as received by way of consideration written off in accounts as a bad debt.

(7)The provisions which may be included in regulations by virtue of subsection (5)(f) above may include rules dealing with particular cases, such as those involving [F289receipt of part of the considerationF289] or mutual debts; and in particular such rules may vary the way in which the following amounts are to be calculated—

(a)the outstanding amount mentioned in subsection (2) above, and

(b)the amount of any repayment where a refund has been allowed under this section.

(8)Section 6 shall apply for determining the time when a supply is to be treated as taking place for the purposes of construing this section.

Definitions used in section 36 7

supplied

(3) In sub-paragraph (2), “supplied” is to be construed in accordance with Part 1 of the Electricity Act 1989 (see section 64(1) of that Act ).

Defined in Sch.7A para.A1 · see it in the full Act

(3) In sub-paragraph (2), “supplied” is to be construed in accordance with Part 1 of the Electricity Act 1989 (see section 64(1) of that Act ).

Defined in Sch.8 para.3 · see it in the full Act
VAT

“VAT” means value added tax charged in accordance with this Act;

Defined in s.96(1) · see it in the full Act
regulations

“regulations” means regulations made by the Commissioners under this Act;

Defined in s.96(1) · see it in the full Act
the Commissioners

“the Commissioners” means the Commissioners of Customs and Excise;

Defined in s.96(1) · see it in the full Act
money

“money” includes currencies other than sterling;

Defined in s.96(1) · see it in the full Act
document

“document” means anything in which information of any description is recorded; and

Defined in s.96(1) · see it in the full Act
prescribed

“prescribed” means prescribed by regulations:

Defined in s.96(1) · see it in the full Act

Cases considering section 36 8

Regency Factor Plc v The Commissioners for HMRC

[2022] EWCA Civ 103 · 3 February 2022

Applies section 36 as the primary domestic entitlement to bad debt relief, subject to regulations. The relief concerns a particular supply and requires the statutory conditions to be met. (see paras [24]-[29]) Applies section 36(1) to identify the threshold conditions: VAT accounted for and paid, consideration written off as bad debt, and six months elapsed from the supply. (see para [24]) Applies section 36(2) as conferring entitlement to a refund of VAT on the outstanding amount, subject to the section’s later provisions and regulations. (see para [25]) Confirms the power to require claims to be evidenced and quantified by specified records and documents. (see para [26]) Confirms, together with section 36(5), the power to make regulations governing evidence and record-keeping for bad debt relief. (see para [26])

HM Revenue & Customs v GMAC (UK) Plc

[2016] EWCA Civ 1015 · 25 October 2016Disapplies

The provision retained the property condition for relevant supplies. That condition was incompatible with EU law because it excluded broad classes of genuine bad debts without an appropriate or necessary justification (see paras [26]; [38]-[39]; [80]-[83]).

HBOS Plc & Anor v The Commissioners for HMRC

[2023] UKUT 13 (TCC) · 13 January 2023Disapplies

Cited as the statutory basis for bad debt relief. The appeal concerned interest on refunds claimed under this section after the property condition was found unlawful (see paras [3]-[11]). Identifies the writing-off condition as one of the valid substantive conditions for bad debt relief. The appellants’ counterfactual claims depended on satisfaction of that condition (see paras [10]-[11], [60], [67]). Identifies the statutory waiting period as a substantive condition for bad debt relief. The court treated satisfaction of this condition, together with write-off, as relevant to when a claim would have been made (see paras [10]-[11], [60], [67]). Contains the property condition which prevented bad debt relief for the relevant hire-purchase supplies. The court held that the error arising from this unlawful condition could fall within section 78 (see paras [4], [10]-[11], [44]-[56]). Cited as the provision under which a person satisfying the statutory conditions became entitled, on making a claim, to a refund of VAT attributable to the bad debt. The court ultimately did not need to decide whether entitlement arose before the actual claim (see paras [10], [57], [70], [74]).

What each judgment says about section 36 is in the case-law panel in the full Act.

Amendments and notes

10 notes from legislation.gov.uk

Amendments

  1. F280Words in s. 36(1)(a) repealed (31.7.1998 with effect as mentioned in s. 23(7) of the amending Act) by 1998 c. 36, ss. 23(1)(7), 165, Sch. 27 Pt. II Note
  2. F281S. 36(3) substituted (27.7.1999 with effect as mentioned in s. 15(5) of the amending Act) by S.I. 1999 c. 16, s. 15(1)
  3. F282S. 36(3A) inserted (31.7.1998 with effect as mentioned in s. 23(7) of the amending Act) by 1998 c. 36, s. 23(3)(7)
  4. F283S. 36(4)(b) and word “and” immediately preceding it repealed (19.3.1997 with effect as mentioned in s. 39 of the amending Act) by 1997 c. 16, ss. 39, 113, Sch. 18 Pt. IV(3) Note
  5. F284S. 36(4A) repealed (with effect as mentioned in s. 22(3) of the amending Act) by Finance Act 2002 (c. 23), s. 22(2), Sch. 40 Pt. 2(1); S.I. 2002/3028, art. 2
  6. F285Words in s. 36(5)(c) substituted (31.7.1998) by 1998 c. 36, s. 23(4)(a)
  7. F286Words in s. 36(5)(e) substituted (27.7.1999 with effect as mentioned in s. 15(5) of the amending Act) by 1999 c. 16, s. 15(2)
  8. F287S. 36(5)(ea) repealed (with effect as mentioned in s. 22(3) of the amending Act) by Finance Act 2002 (c. 23), s. 22(2), Sch. 40 Pt. 2(1); S.I. 2002/3028, art. 2
  9. F288Words in s. 36(6)(b)(c) substituted (31.7.1998) by 1998 c. 36, s. 23(5)
  10. F289Words in s. 36(7) substituted (31.7.1998) by 1998 c. 36, s. 23(6)