Suppose you were to raise a VAT invoice for say ?,000 plus VAT (?,175) and the debtor refuses to pay. The matter ends up in court and the debtor (defendant) is ordered to pay the sum of ?00 plus VAT (?,057.50).

Following receipt of payment the above transaction would show a balance of ?17.50, being ?00 plus VAT. What is the correct way to deal with this balance?

The options that spring to mind are:-

1) Write off the ?00 plus VAT, with an appropriate adjustment to VAT payable of ?7.50.
2) Pay the original VAT amount due (?75) and write off the ?17.50 with no VAT adjustment.
3) Issue a credit for ?00 plus VAT.

I presume there must be a correct way of dealing with this?

Many thanks for your contribution.
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Choose 3 issue the credit note
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you could go with option 3, but technically its a bad debt so i'd say go with option 1. either one would be fine
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Thanks for that both of you.

I now notice that with Quickbooks (I use QB 2008 LOL) I have to issue a credit note to record the bad debt and VAT is automatically adjusted.

Seems your both right, the answer staring me in the case as always.

Once again many thanks.
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you could go with option 3, but technically its a bad debt so i'd say go with option 1. either one would be fine

I'd take a different view. The debt isn't bad because the debtor has paid it. The value of the supply has been adjusted by the Court, so I think a credit note is the correct way to deal with it.
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I do see the argument in favour of a credit note. As you say the value of the supply has been altered and the Judgment being binding I am of course deemed to have accepted this. I think I will take the credit note route.
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I'd take a different view. The debt isn't bad because the debtor has paid it. The value of the supply has been adjusted by the Court, so I think a credit note is the correct way to deal with it.

thats semantics, either way it doesn't make a difference to the VAT or the bottom line, as i said either would be fine
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