Overdue and unpaid invoices: what is their tax treatment and what to do with them?
Posted: Wed Dec 18, 2024 3:57 am
Overdue and unpaid invoices are a reality that any business must face. If you have problems with unpaid invoices, in this article you can take good note of how you can claim them and their accounting and tax repercussions.
Without the right tools, keeping track of overdue and unpaid invoices can be a time-consuming process.
With appropriate accounting software , you can have this information in a very direct way.
Overdue and unpaid invoices are a reality that any business has to deal with, no matter how many efforts are made to avoid them. However, you shouldn't throw up your hands as soon as an invoice is due. After all, dealing with clients also involves using good judgment.
In any case, many entrepreneurs tokelau email list have doubts : how to proceed with the claim of overdue and unpaid invoices, their accounting and tax implications... Gaining this knowledge is the first step to proceed in an orderly manner.
Confirm that the invoice is due and that you have not made a mistake: you did not send the invoice, the agreed date has not arrived, there is a condition that has not yet been met, etc.
Check that there has not been a previous claim regarding a defective delivery of the goods or provision of the service.
Start contacting the client to confirm that there has been no confusion. Ideally, this should be done by email or another form of written record.
Investigate possible problems with the client's treasury or solvency .
After this round of checks, once the first contacts have been established, the client's response is key. If they do not return, the next step is to send certified letters or burofaxes. If you have to opt for legal action, this will serve as proof.
The judicial claim for overdue and unpaid invoices
The next step to claim an unpaid invoice when previous claims have not been successful is usually to initiate a summary trial . This is a judicial process to try to resolve this type of conflict, regulated by the Civil Procedure Law.
To start this procedure, certain conditions must be met. The most important ones are:
The debt must be monetary.
The invoice due date must have passed .
You will need to have some documentation proving the existence of the debt . In addition to the invoice , delivery note or contract, you can provide written documents proving that you have claimed payment on several occasions, such as the invoice payment request letter, certified mail or others.
Integrate your accounting, billing, treasury, taxes and commercial management in a single tool with Sage 50 .
Recovering VAT from unpaid invoices
You do not have to give up on the accrued VAT that you have already declared in the VAT return and that you are unable to collect. You can recover the VAT that you have paid if certain requirements are met that allow the credit to be considered totally or partially uncollectible :
The client must be a business owner or professional . If not, the VAT tax base of the transaction must be greater than 50 euros.
You must have reflected this circumstance in the registration books .
A period of time must have elapsed since the expiration date , which depends on the type of transaction. Typically, one year or six months must have passed, in the case of a trading volume of less than 6,010,121.04 euros.
The debt must have been officially claimed (for example, through a judicial procedure - monitoring process - or through a notary). In the case of credits owed by public entities, you will need a certificate from the auditor or treasurer.
If these requirements are met , you will be able to issue a corrective invoice , which you will include in the corresponding settlement. You will send it to the Treasury and to the recipient of the operation. The communication to the Treasury will be subject to various requirements that you can consult in article 24 of the tax regulations .
Unpaid invoices for corporate tax
Article 13.1 of the Corporate Income Tax Act allows for the deduction of losses due to impairment of credits arising from possible insolvencies of debtors when any of the following circumstances occur:
That a period of 6 months has elapsed since the obligation became due.
That the debtor is declared bankrupt .
Without the right tools, keeping track of overdue and unpaid invoices can be a time-consuming process.
With appropriate accounting software , you can have this information in a very direct way.
Overdue and unpaid invoices are a reality that any business has to deal with, no matter how many efforts are made to avoid them. However, you shouldn't throw up your hands as soon as an invoice is due. After all, dealing with clients also involves using good judgment.
In any case, many entrepreneurs tokelau email list have doubts : how to proceed with the claim of overdue and unpaid invoices, their accounting and tax implications... Gaining this knowledge is the first step to proceed in an orderly manner.
Confirm that the invoice is due and that you have not made a mistake: you did not send the invoice, the agreed date has not arrived, there is a condition that has not yet been met, etc.
Check that there has not been a previous claim regarding a defective delivery of the goods or provision of the service.
Start contacting the client to confirm that there has been no confusion. Ideally, this should be done by email or another form of written record.
Investigate possible problems with the client's treasury or solvency .
After this round of checks, once the first contacts have been established, the client's response is key. If they do not return, the next step is to send certified letters or burofaxes. If you have to opt for legal action, this will serve as proof.
The judicial claim for overdue and unpaid invoices
The next step to claim an unpaid invoice when previous claims have not been successful is usually to initiate a summary trial . This is a judicial process to try to resolve this type of conflict, regulated by the Civil Procedure Law.
To start this procedure, certain conditions must be met. The most important ones are:
The debt must be monetary.
The invoice due date must have passed .
You will need to have some documentation proving the existence of the debt . In addition to the invoice , delivery note or contract, you can provide written documents proving that you have claimed payment on several occasions, such as the invoice payment request letter, certified mail or others.
Integrate your accounting, billing, treasury, taxes and commercial management in a single tool with Sage 50 .
Recovering VAT from unpaid invoices
You do not have to give up on the accrued VAT that you have already declared in the VAT return and that you are unable to collect. You can recover the VAT that you have paid if certain requirements are met that allow the credit to be considered totally or partially uncollectible :
The client must be a business owner or professional . If not, the VAT tax base of the transaction must be greater than 50 euros.
You must have reflected this circumstance in the registration books .
A period of time must have elapsed since the expiration date , which depends on the type of transaction. Typically, one year or six months must have passed, in the case of a trading volume of less than 6,010,121.04 euros.
The debt must have been officially claimed (for example, through a judicial procedure - monitoring process - or through a notary). In the case of credits owed by public entities, you will need a certificate from the auditor or treasurer.
If these requirements are met , you will be able to issue a corrective invoice , which you will include in the corresponding settlement. You will send it to the Treasury and to the recipient of the operation. The communication to the Treasury will be subject to various requirements that you can consult in article 24 of the tax regulations .
Unpaid invoices for corporate tax
Article 13.1 of the Corporate Income Tax Act allows for the deduction of losses due to impairment of credits arising from possible insolvencies of debtors when any of the following circumstances occur:
That a period of 6 months has elapsed since the obligation became due.
That the debtor is declared bankrupt .