What Is Bad Debt? Meaning, Examples and UK Write-Offs
A bad debt is money a customer owes that a business no longer reasonably expects to collect. The receivable is written off in the accounts using the appropriate accounting treatment.
Updated 26 September 2026
Bad debt at a glance
An invoice can be late without being doubtful, and doubtful without being ready to write off. The evidence matters more than a single age threshold.
Overdue debt
Payment is late
The invoice has passed its due date, but the customer may still pay after a reminder or agreed plan.
Doubtful debt
Collection is uncertain
There are warning signs, but the business has not concluded that the amount is irrecoverable.
Bad debt
Recovery is no longer expected
The receivable is treated as irrecoverable and written off in the accounts using the appropriate treatment.
Six months is not a universal bad-debt rule
Six months is part of HMRC's timing test for VAT bad debt relief. It does not automatically make every six-month-old invoice irrecoverable.
When does an unpaid invoice become bad debt?
There is no single age that makes every invoice a bad debt. The decision is normally based on evidence that full recovery is no longer reasonably expected, not simply the number of days overdue.
- The customer has entered insolvency, ceased trading or been dissolved.
- Documented reminders, calls and a final demand have not produced payment or a workable plan.
- The invoice is valid and undisputed, but enforcement is unlikely to recover enough to justify its cost.
- Professional advice supports treating the specific receivable as irrecoverable.
A dispute, a late invoice or a difficult customer does not by itself prove that the debt is irrecoverable. Check the facts and get accounting or legal advice where the treatment is material.
Practical checklist
Before writing off a customer debt
- 1
Verify the balance
Check the invoice, payment terms, delivery evidence, credits and any part-payments or disputes.
- 2
Keep a recovery record
Retain reminders, call notes, agreed payment plans and formal demands so the decision is evidence-led.
- 3
Compare the next steps
Weigh further chasing, mediation, a letter before action or a court claim against the amount, evidence and likely recovery.
- 4
Confirm the accounting treatment
Remove the receivable and record the loss only using the treatment appropriate to the business and its accounting basis.
- 5
Check VAT separately
If VAT was accounted for, use HMRC's conditions and time limits rather than assuming the accounting write-off creates a VAT claim.
VAT bad debt relief: the key UK conditions
HMRC says a VAT-registered supplier may be able to reclaim VAT on an unpaid supply when all the conditions are met. The main checks include:
- You already accounted for the VAT and paid it to HMRC.
- You wrote off the debt in the day-to-day VAT accounts and transferred it to a separate bad debt account.
- The debt has remained unpaid for at least six months after the later of the payment due date and the supply date.
- The debt has not been paid, sold or factored under a valid legal assignment.
- The claim is made within HMRC's time limit and the required records are kept.
Cash Accounting Scheme users normally only pay VAT after receiving payment, so HMRC says bad debt relief is unnecessary for those supplies. Read the full, current conditions in VAT Notice 700/18.
Bad debt vs doubtful debt
- Doubtful debt
- Payment is uncertain, so the receivable may need a specific allowance or provision while recovery continues.
- Bad debt
- The specific receivable is treated as irrecoverable and written off using the appropriate accounting treatment.
HMRC's business-income guidance explains that the evidence for bad and doubtful debts should relate to the position of the specific debtor. See the official bad and doubtful debt guidance.
Examples
A freelancer records an £800 invoice as bad debt after the client is dissolved and documented recovery attempts fail.
A VAT-registered supplier checks VAT Notice 700/18 after an invoice has remained unpaid for more than six months and has been written off in its VAT accounts.
A 45-day-overdue invoice remains an overdue or doubtful debt while the customer follows an agreed payment plan; it is not automatically bad debt.
Bad debt questions
What is a bad debt?
A bad debt is money a customer owes that a business no longer reasonably expects to collect. The receivable is written off in the accounts, subject to the business's accounting and tax treatment.
What is the difference between a bad debt and a doubtful debt?
A doubtful debt may still be collected, although payment is uncertain. A bad debt is treated as irrecoverable and written off. An overdue invoice is not automatically either one.
When can a business write off a bad debt?
There is no single age that makes every debt bad. Businesses normally look for evidence that recovery is unlikely, such as insolvency, failed collection attempts or recovery costs that are disproportionate to the amount owed. Accounting and tax treatment depends on the circumstances.
Can a VAT-registered business reclaim VAT on a bad debt?
Potentially. HMRC's conditions include having accounted for and paid the VAT, writing the debt off in the VAT accounts, and waiting at least six months after the later of the payment due date and supply date. Other conditions and time limits also apply.
Is every invoice unpaid for six months a bad debt?
No. Six months is part of HMRC's VAT bad debt relief timing test; it is not a universal rule that automatically makes an unpaid invoice irrecoverable.
Related Terms
Aged Debtor Report
An aged debtor report (aged receivables report) categorises outstanding invoices by how long they have been overdue, helping businesses prioritise collections.
Debt Recovery
Debt recovery is the process of pursuing payment of overdue invoices, ranging from informal chasing through to formal legal action.
Accounts Receivable
Accounts receivable (AR) is the money owed to a business by its customers for goods or services delivered but not yet paid for.
Statutory Late Payment Interest
Eligible UK commercial debts may qualify for statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998.