As the country is slowly pulling itself out of the recession many businesses are still dealing with the aftermath of the financial crisis. This has increased the amount of bad debts which companies are having to deal with. There are two forms of debt, good and bad. Good debt (if debt can ever be considered good) are debts which have been taken on by a company which will ultimately benefit the company. Good debts can also be thought of as investments and would include the purchase of items which may increase in value and therefore add to the overall financial value of the business. An example of a good debt could be the purchase of a house with a mortgage or an investment into rapid prototyping machinery which would help the business improve its productivity levels.
Bad debts however cause more of an issue for a business. Often caused when a client of a business goes bankrupt, bad debts occur when a company is owed money which they will be unable to collect. As a result of this bad debt the company will be forced to absorb the cost of any money outstanding, writing this off as a loss to the company. In one off situations this can be feasible although not ideal. However in the case of a recession or where a business relies heavily on their clients financial input this can often have a knock on effect and can result in the bankruptcy of suppliers and clients a like. For example the collapse of Enron caused chaos for associated companies such as Arthur Andersen, Citigroup and JP Morgan Chase.
If your business is faced with bad debts this can also add additional confusion about who these are represented in terms of accountancy and in VAT returns. Many companies are also unaware about the ability to reclaim the VAT against your bad debts, this is known as 'bad debt relief'. The process of bad debt relief has various limitations and regulations including the length of time the debt has been owed, the sales purchase and selling price of the product/service, how the debt has been handled by the company and how it has been recorded on an accountancy level. As a result of these regulations many companies often turn to accountancy and VAT specialists for help with all their accountancy and VAT needs. However the issue can still arise with small and new businesses who may not have the finances to outsource their accountancy needs. This is where new services such as VAT Health Checks come into their own. Offered by accountancy and VAT consultants such as Anderson Anderson Brown VAT Health Checks can be performed with the companies own records in the form of a mock VAT inspection or audit and can help identify any issues which may arise. In the long term this can also help the business prevent themselves against any complications with HM Revenue and Customs and therefore any hefty fines.
Bad debts however cause more of an issue for a business. Often caused when a client of a business goes bankrupt, bad debts occur when a company is owed money which they will be unable to collect. As a result of this bad debt the company will be forced to absorb the cost of any money outstanding, writing this off as a loss to the company. In one off situations this can be feasible although not ideal. However in the case of a recession or where a business relies heavily on their clients financial input this can often have a knock on effect and can result in the bankruptcy of suppliers and clients a like. For example the collapse of Enron caused chaos for associated companies such as Arthur Andersen, Citigroup and JP Morgan Chase.
If your business is faced with bad debts this can also add additional confusion about who these are represented in terms of accountancy and in VAT returns. Many companies are also unaware about the ability to reclaim the VAT against your bad debts, this is known as 'bad debt relief'. The process of bad debt relief has various limitations and regulations including the length of time the debt has been owed, the sales purchase and selling price of the product/service, how the debt has been handled by the company and how it has been recorded on an accountancy level. As a result of these regulations many companies often turn to accountancy and VAT specialists for help with all their accountancy and VAT needs. However the issue can still arise with small and new businesses who may not have the finances to outsource their accountancy needs. This is where new services such as VAT Health Checks come into their own. Offered by accountancy and VAT consultants such as Anderson Anderson Brown VAT Health Checks can be performed with the companies own records in the form of a mock VAT inspection or audit and can help identify any issues which may arise. In the long term this can also help the business prevent themselves against any complications with HM Revenue and Customs and therefore any hefty fines.
If you are concerned about your businesses compliance with VAT regulations then why not get a VAT Health Check from AAB the accountancy and VAT specialists.
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