What is a bad debt provision?
A bad debt provision is when a business is due to receive money for a sale (whether goods or services) from a customer which the business does not expect to realistically receive, even when actively chasing. The reasons behind not expecting receipt can be very wide ranging and ultimately the reason for the provision is not relevant from a tax perspective.
When the invoice is originally raised, the sale would have been included in the turnover figure of the accounts or tax return, meaning that tax would be liable on this amount.
There are two ways of showing a bad debt provision; a specific provision or a general provision, both of which have different tax treatments. A general provision is not allowable for tax purposes as this is looking at the total amounts due and taking a set percentage or amount because a business does not expect they will receive all amounts due. On the other hand, a specific provision is allowable as they would be against a set amount and customer.
If you have any questions about what is allowable or disallowable, please get in touch with us
