Writing off an invoice

[edmolyneux]

Just a hypothetical question.

As I understand it. If you submit an invoice to a company and they refuse/fail to pay the invoice you can claim the invoice as a loss and it'll reduce your tax liability.

If, given my assumption is correct ( and I'm not an accountant so it may well be wrong). What's to stop me from writing an invoice to one of my friends companies and when they don't pay (nudge nudge), writing off the invoice as a loss and reducing my tax....

Sorry, I'm a bit bored at the moment and am thinking up some creative ways to get one over on Mr Darling...

Alas your tax liability is calculated from the invoices you send rather than the payments you receive. The date you submit that invoice is the date the liability arises. Nice try, though.

Here's a wrinkle - if you're on the VAT flat rate scheme you can reclaim bad debt relief at the standard rate, not your flat rate (see here). You might make a few quid there, but when the VAT inspector comes round, as he surely will, there'll me more than a few eyebrows raised...

[ASB]

Na, it'll probably be a nice place near Bognor (Ford)

tim

I seem to recall Heron International was partially run from there for a few months.

[tim123]

Just get your mate to send you 100k in invoices. Don't pay these, but claim to have been defrauded by your finance director who directed the funds. You should achieve most of your objectives this way. You increase your expenses - thus reducing your CT, and you probably also get a nice little holiday on the Isle of Wight as a free bonus

Na, it'll probably be a nice place near Bognor (Ford)

tim

[ASB]

Bugger

Just get your mate to send you 100k in invoices. Don't pay these, but claim to have been defrauded by your finance director who directed the funds. You should achieve most of your objectives this way. You increase your expenses - thus reducing your CT, and you probably also get a nice little holiday on the Isle of Wight as a free bonus

[Alan @ BroomeAffinity]

[QUOTE=NotAllThere;484370] with [QUOTE]

Suitably chastised. Edit done.

[NotAllThere]

You'd only be able to write it off against profits - not tax. Quick example:

Without "pretend" invoice raised and written off:

Turnover £100,000
Expenses (incl write offs) 50,000
Profit 50,000
CT payable 10,000

Without "pretend" invoice raised and wrtten off:

Turnover £120,000
Expenes (incl write offsI 70,000
Profit 50,000
CT payable 10,000

You see?

with

But a nice example.

[Flat Eric]

Bugger

[Alan @ BroomeAffinity]

You'd only be able to write it off against profits - not tax. Quick example:

Without "pretend" invoice raised and written off:

Turnover £100,000
Expenses (incl write offs) 50,000
Profit 50,000
CT payable 10,000

With "pretend" invoice raised and wrtten off:

Turnover £120,000
Expenes (incl write offsI 70,000
Profit 50,000
CT payable 10,000

You see?

[Flat Eric]

Why would this reduce your tax liability?

Before you can write the invoice off you'd need to to "write it on" as it were. ie, you'd need to increase turnover, and therefore profit and therefore tax before you could reduce them so there would be no net difference.

On top of that you'd have to add it in to your sales and pay VAT on it (assuming you are registered and not on cash accounting). You'd then need to wait a while before you can write it off and then claim bad debt relief and prepare all the attendant paperwork. And thats just the VAT. If you're not VAT reg'd, there'd be less paperwork but it'd still not do you any good.

Oh and another thing, its tax evasion which is illegal and could result in you wearing some "lockable bangles".

But wouldn't you be able to write it off as a loss..

I like the bit about the lockable bangles..

[Alan @ BroomeAffinity]

Why would this reduce your tax liability?

Before you can write the invoice off you'd need to to "write it on" as it were. ie, you'd need to increase turnover, and therefore profit and therefore tax before you could reduce them so there would be no net difference.

On top of that you'd have to add it in to your sales and pay VAT on it (assuming you are registered and not on cash accounting). You'd then need to wait a while before you can write it off and then claim bad debt relief and prepare all the attendant paperwork. And thats just the VAT. If you're not VAT reg'd, there'd be less paperwork but it'd still not do you any good.

Oh and another thing, its tax evasion which is illegal and could result in you wearing some "lockable bangles".

[NickNick]

Last year, an agency I was working through went bust not fulfilling about 4 invoices. I'm meeting with the accountant to see about this very thing next week, so will let you know how it goes.

[Sockpuppet]

It doesn't reduce your tax liability. HTH

[Flat Eric]

Just a hypothetical question.

As I understand it. If you submit an invoice to a company and they refuse/fail to pay the invoice you can claim the invoice as a loss and it'll reduce your tax liability.

If, given my assumption is correct ( and I'm not an accountant so it may well be wrong). What's to stop me from writing an invoice to one of my friends companies and when they don't pay (nudge nudge), writing off the invoice as a loss and reducing my tax....

Sorry, I'm a bit bored at the moment and am thinking up some creative ways to get one over on Mr Darling...