How do I write off an unpaid invoice in my accounts?
The short answer
Only when it's bad. Once you have decided it will not be paid, and can say why in a dated note, take it out of what customers owe you and put the amount before VAT into bad debts, as a cost3. If you are VAT-registered, you claim the VAT back once it is six months past due1. The customer still owes you: you can sue within six years of the due date10.
England and Wales only. WolfX is software, not a law firm.
What you can add
A £7,200 invoice, written off
Say a small limited company invoiced another business on 3 February 2026: £6,000 plus VAT at 20%12, which is £1,200, so £7,200 in all, due on 5 March 2026. It paid the £1,200 to HMRC. Nothing has arrived. The work was done in February, so the later of the due date and the supply date is the due date, 5 March. Six months on is 5 September 2026. On 7 September the owner signs the decision note and the bookkeeper makes the entry. The company's profits are £50,000 or less, so its Corporation Tax rate is 19%11.
So the bad debt costs £4,860.00, not £7,200.00, as long as the company has profits to set the £6,000.00 against. The customer still owes the £7,200.00. If it pays in full, the £1,200.00 goes back to HMRC in Box 1 and the £6,000.00 returns to the company's profits.
The road ahead
Six steps. No fees.
Step 1: Check it is bad, not just late
It must be unpaid, and you must have good reason to think it will not be paid: the client is insolvent, or has vanished.
For a sole trader, a debt is deductible if it is bad or estimated to be bad2; if the debtor is insolvent, that is the whole debt, except what you can reasonably expect to receive. Age alone is not enough for a habitual slow payer4.
Step 2: Write the decision note
Use the note below. Date it the day you decide, say who decided and why, and list the invoice, the chasing and any Gazette or insolvency notice. HMRC's guidance for traders lists what it may ask to see5: when the debt was valued, by whom, and on what information.
Step 3: Make the entry
Take the invoice out of what customers owe you and put the amount net of VAT into bad debts, as a cost. If you are VAT-registered, the VAT part waits: once the debt is six months past due, write it off in your VAT accounts and move it to a separate bad debt account1.
You decide and sign. Your bookkeeper or accountant makes the entry.
Step 4: Take the deduction in the year it went bad
The deduction belongs to the year the debt becomes bad3, not the year of the invoice. A company's trade bad debts go through the loan relationship rules7, where relief follows an impairment loss.
Judge each debt on its own. A flat reserve of, say, 5% of what customers owe is not allowed3, and a company cannot claim a general provision8 even if it is in the accounts.
Step 5: Claim the VAT back after six months
Wait until the debt has been unpaid for 6 months1 after the later of the due date and the supply date.
Then claim it in Box 4 of the return that covers the day you meet every condition1. The VAT page has the deadline.
Step 6: Keep the claim open, and reverse it if they pay
A write-off ends nothing between you and the customer: you have six years to sue10, counted from when the claim arose, usually the due date. Do not tell them it is written off; they may read that as forgiveness.
If money arrives, record it, reverse the write-off, and repay the VAT in that payment in Box 11 of the return for the period you received it.
A letter you can copy
Decision note: writing off a bad debt
Write it on the day you decide the debt will not be paid, before the entry goes into the books.
Tap a highlighted gap to see what goes in it.
Date it on the day you decide, and keep it with the invoice, the chasing emails and any Gazette or insolvency notice. Email a copy to your bookkeeper or accountant, so the entry has a dated source. Do not send it to the customer. It is a record for your books, not a letter to them.
When not to bother
When it isn't worth it
- You are a sole trader on the cash basis. There is nothing to write off9: you only record income when the money arrives. Your VAT is separate; see the VAT page.
- The customer disputes it and you may still win. Leave it open, because a debt you may win is not one you have concluded will not be paid. The dispute page covers the road.
- It is small and the client may still pay. Leave it on the ledger and decide at the year-end, when you review everything else.
- It is a loan or an advance, not an unpaid invoice. For a trader, a loss on a loan or advance is usually not deductible6, so ask your accountant before you write anything off.
- You are in Scotland or Northern Ireland. The tax and VAT rules here apply across the UK, but the six-year limit10 is the law for England and Wales. Scotland and Northern Ireland set their own time limits to sue, so check yours.
The Wolf's note
Your books record what you expect, not what you have forgiven. Date the decision, write down why, and leave the claim where it is. If the money turns up, the entry reverses and the VAT relief is repaid.
Mr. Wolf · the AI inside WolfX
What comes next
Your next move
Can I reclaim the VAT on an invoice that was never paid?
Yes. Six months after an invoice falls due, you can claim back the VAT you paid HMRC on it, in Box 4 of your VAT Return, once the debt is written off.
6 min read · Letter included
If they go under
A company that owes me money has gone into liquidation. What happens to my invoice?
Your invoice joins a queue behind lenders, the costs, wages and some HMRC debts, so suppliers usually get little.
7 min read · Letter included
If they push back
My client disputes my invoice. What happens next?
The disputed part waits.
6 min read · Letter included
Don't want to do this yourself?
The Wolf does every step for you. He works out the sums, writes the letters and keeps track of every date. Nothing goes without your yes.