Invoice 90+ days overdue. Customer not responding. Here's when to stop chasing and claim tax relief instead.

£2,400 invoice. 120 days overdue. Customer stopped answering calls three weeks ago.

You've sent reminder emails. Made calls. Threatened legal action. Nothing.

At what point do you stop wasting time chasing money you'll never see and write it off for tax relief instead?

£8.2bn

in unpaid invoices owed to UK small businesses annually

Keep the rest of your compliance stack tight with Complete CIS Tax Guide for Subcontractors 2026, UK Trades Tax Deduction Checklist, and Sole Trader vs Limited Company for Trades.

⚠️ Not Tax or Accounting Advice

This guide is for informational purposes only and does not constitute tax advice, accounting advice, or professional financial services. Tax laws, allowances, and HMRC requirements change frequently.

Before making any tax decisions or filing returns: Consult a qualified accountant or tax advisor who can review your specific circumstances. What's mentioned here may not apply to your situation, and regulations may have changed since publication.

Official source: HMRC (gov.uk/hmrc)

When to Stop Chasing: The Cost-Benefit Analysis

Before you write off debt, calculate whether chasing is worth your time.

Debt Under £200

Write It Off After 90 Days

Time spent chasing £150 costs more than the £150 itself.

Your time at £50/hour:

2 hours chasing calls/emails = £100
1 hour small claims paperwork = £50
3 hours court appearance = £150
Total cost: £300 to recover £200

Action: One final demand letter. If no response in 14 days, write it off.

Debt £200-£500

Small Claims Court if Customer Has Assets

Worth pursuing legally, but only if customer can actually pay.

Decision factors:

Yes to court if: Customer owns property, runs business, has visible assets
Write off if: Customer is unemployed, renting, already in debt, disappeared

Court cost: £70 filing fee for claims £300-500. You'll recover this if you win.

Debt Over £1,000

Always Pursue (Unless Bankrupt)

Large enough to justify legal action. Small claims court handles up to £10,000.

Process:

Send Letter Before Action (legal requirement)
Wait 14 days for response
File small claims court claim online
Customer has 14 days to respond or admit debt
Court hearing if disputed

Exception: If customer has entered bankruptcy/liquidation, you won't recover. Write off immediately.

Small Claims Court: Process and Costs

For debts worth pursuing legally, here's what you're in for:

Court Fees (England & Wales 2026)

Claims up to £300£35

£300.01 - £500£50

£500.01 - £1,000£70

£1,000.01 - £1,500£80

£1,500.01 - £3,000£115

£3,000.01 - £5,000£205

£5,000.01 - £10,000£455

Good news: If you win, customer pays your court fees.

Timeline and Process

Week 1: File Claim Online

Use Money Claim Online service. Takes 30 minutes. Court issues claim to customer.

Week 2-3: Customer Responds

They can: admit debt and pay, admit debt and request payment plan, or defend the claim.

Week 4-8: Court Hearing (If Defended)

Informal hearing. Bring evidence. Judge decides. Usually over in 30 minutes.

Week 9+: Enforcement (If They Still Won't Pay)

You've won. They still haven't paid. Now you need bailiffs (extra £110 fee) or other enforcement.

Reality Check

Winning in court doesn't guarantee payment. 30% of County Court Judgments are never paid. If customer has no money or assets, you'll never collect even with a court order.

HMRC Bad Debt Relief: What You Can Claim

You've given up chasing. Now get some of your money back through tax relief.

Who Can Claim Bad Debt Relief

You Must Meet ALL These Criteria:

1. You're VAT registered - And you charged VAT on the invoice
2. Invoice is 6+ months overdue - From payment due date, not invoice date
3. You've written it off in your accounts - Formally recorded as bad debt
4. You paid the VAT to HMRC - Can't claim relief on VAT you never paid
5. Customer hasn't paid ANY of the invoice - Partial payments disqualify you

Not VAT Registered?

You can't claim bad debt relief from HMRC. But you CAN reduce your tax bill by deducting the bad debt as a business expense. See below.

How to Claim VAT Bad Debt Relief

Step 1: Write Off in Accounts

Record the invoice as "Bad Debt" in your accounting software. This creates the paper trail HMRC requires.

Step 2: Calculate VAT Relief

Example:

Invoice total: £2,400 (including £400 VAT)
VAT you paid to HMRC: £400
Relief you can claim: £400

Step 3: Claim on VAT Return

Add the VAT amount to Box 4 of your VAT return (VAT reclaimed on purchases). File as normal.

HMRC processes it automatically. No special forms needed.

Documentation You Need

Original invoice showing VAT charged
Proof you paid that VAT to HMRC (VAT return showing the period)
Evidence of attempts to collect (emails, letters, call logs)
Written confirmation you've written it off in your books

Keep for 6 years in case HMRC audits the claim.

Tax Deduction for Bad Debt (Non-VAT Businesses)

If you're not VAT registered, you can still reduce your tax bill by claiming the bad debt as a business expense.

How it works:

Bad debt reduces your taxable profit. Less profit = less tax.

Example:

Annual profit before bad debt: £45,000
Bad debt written off: £2,000
Adjusted profit: £43,000
Tax saved (at 20% income tax): £400

Include in your Self Assessment under "Other Business Expenses" with description "Bad Debt Relief".

Writing Off in Your Accounts

Formal process for removing unpaid invoices from your books:

1. Create Bad Debt Expense Category

In your accounting software: Chart of Accounts → Add Expense → "Bad Debt"

2. Record Write-Off Transaction

Apply credit note to unpaid invoice. Categorize as "Bad Debt Expense".

This removes it from "Accounts Receivable" (money owed to you) and records it as an expense.

3. Add Note with Details

Customer name, invoice number, date written off, reason. HMRC may ask for this.

Preventing Future Bad Debt

Better than writing off debt is not creating it in the first place.

1. Require Deposits (50% Upfront)

For jobs over £500, take 50% deposit before starting. If they won't pay, you haven't done the work yet.

Script:

"I book the job in when I receive the 50% deposit. Keeps my schedule confirmed and covers materials. Balance due on completion."

2. Payment on Completion (Not Invoicing Later)

Take payment same day. Don't send invoice with 30-day terms. Those 30 days become 60, then 90, then never.

Reality: 85% of invoices paid on completion get paid. Only 40% of 30-day invoices get paid on time.

3. Credit Check Commercial Customers

Before accepting large commercial contracts, check if the company is financially stable.

Companies House: Free. Check if in liquidation or has charges against it.
Credit Safe / Experian Business: £10-30. Full credit report and score.
Warning signs: Recently incorporated, multiple County Court Judgments, negative net worth

4. Set Clear Payment Terms

Invoice must state payment terms clearly:

Include on every invoice:

"Payment due on receipt" or "Payment due within 14 days"
Late payment interest rate (8% + Bank of England base rate)
Debt collection fees if unpaid after 30 days

The Bottom Line

Not every unpaid invoice is worth chasing to court.

Your decision tree:

Under £200: Write off after 90 days. Not worth your time.
£200-£1,000: Small claims court if customer has assets. Otherwise write off.
Over £1,000: Always pursue legally unless customer is bankrupt.
VAT registered: Claim bad debt relief after 6 months overdue.
Not VAT registered: Deduct as business expense to reduce tax.

Prevention beats recovery. Deposits and same-day payment eliminate 90% of bad debt before it happens.

£2,400 invoice. 120 days overdue. Customer stopped answering calls three weeks ago.

You've sent reminder emails. Made calls. Threatened legal action. Nothing.

At what point do you stop wasting time chasing money you'll never see and write it off for tax relief instead?

£8.2bn

in unpaid invoices owed to UK small businesses annually

Keep the rest of your compliance stack tight with Complete CIS Tax Guide for Subcontractors 2026, UK Trades Tax Deduction Checklist, and Sole Trader vs Limited Company for Trades.

⚠️ Not Tax or Accounting Advice

Official source: HMRC (gov.uk/hmrc)

When to Stop Chasing: The Cost-Benefit Analysis

Before you write off debt, calculate whether chasing is worth your time.

Debt Under £200

Write It Off After 90 Days

Time spent chasing £150 costs more than the £150 itself.

Your time at £50/hour:

2 hours chasing calls/emails = £100
1 hour small claims paperwork = £50
3 hours court appearance = £150
Total cost: £300 to recover £200

Action: One final demand letter. If no response in 14 days, write it off.

Debt £200-£500

Small Claims Court if Customer Has Assets

Worth pursuing legally, but only if customer can actually pay.

Decision factors:

Yes to court if: Customer owns property, runs business, has visible assets
Write off if: Customer is unemployed, renting, already in debt, disappeared

Court cost: £70 filing fee for claims £300-500. You'll recover this if you win.

Debt Over £1,000

Always Pursue (Unless Bankrupt)

Large enough to justify legal action. Small claims court handles up to £10,000.

Process:

Send Letter Before Action (legal requirement)
Wait 14 days for response
File small claims court claim online
Customer has 14 days to respond or admit debt
Court hearing if disputed

Exception: If customer has entered bankruptcy/liquidation, you won't recover. Write off immediately.

Small Claims Court: Process and Costs

For debts worth pursuing legally, here's what you're in for:

Court Fees (England & Wales 2026)

Claims up to £300£35

£300.01 - £500£50

£500.01 - £1,000£70

£1,000.01 - £1,500£80

£1,500.01 - £3,000£115

£3,000.01 - £5,000£205

£5,000.01 - £10,000£455

Good news: If you win, customer pays your court fees.

Timeline and Process

Week 1: File Claim Online

Use Money Claim Online service. Takes 30 minutes. Court issues claim to customer.

Week 2-3: Customer Responds

They can: admit debt and pay, admit debt and request payment plan, or defend the claim.

Week 4-8: Court Hearing (If Defended)

Informal hearing. Bring evidence. Judge decides. Usually over in 30 minutes.

Week 9+: Enforcement (If They Still Won't Pay)

You've won. They still haven't paid. Now you need bailiffs (extra £110 fee) or other enforcement.

Reality Check

Winning in court doesn't guarantee payment. 30% of County Court Judgments are never paid. If customer has no money or assets, you'll never collect even with a court order.

HMRC Bad Debt Relief: What You Can Claim

You've given up chasing. Now get some of your money back through tax relief.

Who Can Claim Bad Debt Relief

You Must Meet ALL These Criteria:

1. You're VAT registered - And you charged VAT on the invoice
2. Invoice is 6+ months overdue - From payment due date, not invoice date
3. You've written it off in your accounts - Formally recorded as bad debt
4. You paid the VAT to HMRC - Can't claim relief on VAT you never paid
5. Customer hasn't paid ANY of the invoice - Partial payments disqualify you

Not VAT Registered?

You can't claim bad debt relief from HMRC. But you CAN reduce your tax bill by deducting the bad debt as a business expense. See below.

How to Claim VAT Bad Debt Relief

Step 1: Write Off in Accounts

Record the invoice as "Bad Debt" in your accounting software. This creates the paper trail HMRC requires.

Step 2: Calculate VAT Relief

Example:

Invoice total: £2,400 (including £400 VAT)
VAT you paid to HMRC: £400
Relief you can claim: £400

Step 3: Claim on VAT Return

Add the VAT amount to Box 4 of your VAT return (VAT reclaimed on purchases). File as normal.

HMRC processes it automatically. No special forms needed.

Documentation You Need

Original invoice showing VAT charged
Proof you paid that VAT to HMRC (VAT return showing the period)
Evidence of attempts to collect (emails, letters, call logs)
Written confirmation you've written it off in your books

Keep for 6 years in case HMRC audits the claim.

Tax Deduction for Bad Debt (Non-VAT Businesses)

If you're not VAT registered, you can still reduce your tax bill by claiming the bad debt as a business expense.

How it works:

Bad debt reduces your taxable profit. Less profit = less tax.

Example:

Annual profit before bad debt: £45,000
Bad debt written off: £2,000
Adjusted profit: £43,000
Tax saved (at 20% income tax): £400

Include in your Self Assessment under "Other Business Expenses" with description "Bad Debt Relief".

Writing Off in Your Accounts

Formal process for removing unpaid invoices from your books:

1. Create Bad Debt Expense Category

In your accounting software: Chart of Accounts → Add Expense → "Bad Debt"

2. Record Write-Off Transaction

Apply credit note to unpaid invoice. Categorize as "Bad Debt Expense".

This removes it from "Accounts Receivable" (money owed to you) and records it as an expense.

3. Add Note with Details

Customer name, invoice number, date written off, reason. HMRC may ask for this.

Preventing Future Bad Debt

Better than writing off debt is not creating it in the first place.

1. Require Deposits (50% Upfront)

For jobs over £500, take 50% deposit before starting. If they won't pay, you haven't done the work yet.

Script:

"I book the job in when I receive the 50% deposit. Keeps my schedule confirmed and covers materials. Balance due on completion."

2. Payment on Completion (Not Invoicing Later)

Take payment same day. Don't send invoice with 30-day terms. Those 30 days become 60, then 90, then never.

Reality: 85% of invoices paid on completion get paid. Only 40% of 30-day invoices get paid on time.

3. Credit Check Commercial Customers

Before accepting large commercial contracts, check if the company is financially stable.

Companies House: Free. Check if in liquidation or has charges against it.
Credit Safe / Experian Business: £10-30. Full credit report and score.
Warning signs: Recently incorporated, multiple County Court Judgments, negative net worth

4. Set Clear Payment Terms

Invoice must state payment terms clearly:

Include on every invoice:

"Payment due on receipt" or "Payment due within 14 days"
Late payment interest rate (8% + Bank of England base rate)
Debt collection fees if unpaid after 30 days

The Bottom Line

Not every unpaid invoice is worth chasing to court.

Your decision tree:

Under £200: Write off after 90 days. Not worth your time.
£200-£1,000: Small claims court if customer has assets. Otherwise write off.
Over £1,000: Always pursue legally unless customer is bankrupt.
VAT registered: Claim bad debt relief after 6 months overdue.
Not VAT registered: Deduct as business expense to reduce tax.

Prevention beats recovery. Deposits and same-day payment eliminate 90% of bad debt before it happens.

Customer Won't Pay: When to Write Off Bad Debt (UK Tax Rules)

When to Stop Chasing: The Cost-Benefit Analysis

Debt Under £200

Write It Off After 90 Days

Debt £200-£500

Small Claims Court if Customer Has Assets

Debt Over £1,000

Always Pursue (Unless Bankrupt)

Small Claims Court: Process and Costs

Court Fees (England & Wales 2026)

Timeline and Process

Week 1: File Claim Online

Week 2-3: Customer Responds

Week 4-8: Court Hearing (If Defended)

Week 9+: Enforcement (If They Still Won't Pay)

HMRC Bad Debt Relief: What You Can Claim

Who Can Claim Bad Debt Relief

You Must Meet ALL These Criteria:

How to Claim VAT Bad Debt Relief

Step 1: Write Off in Accounts

Step 2: Calculate VAT Relief

Step 3: Claim on VAT Return

Documentation You Need

Tax Deduction for Bad Debt (Non-VAT Businesses)

Writing Off in Your Accounts

1. Create Bad Debt Expense Category

2. Record Write-Off Transaction

3. Add Note with Details

Preventing Future Bad Debt

1. Require Deposits (50% Upfront)

2. Payment on Completion (Not Invoicing Later)

3. Credit Check Commercial Customers

4. Set Clear Payment Terms

The Bottom Line

Track Overdue Invoices Automatically

⚠️ Important Legal Disclaimer

Customer Won't Pay: When to Write Off Bad Debt (UK Tax Rules)

When to Stop Chasing: The Cost-Benefit Analysis

Debt Under £200

Write It Off After 90 Days

Debt £200-£500

Small Claims Court if Customer Has Assets

Debt Over £1,000

Always Pursue (Unless Bankrupt)

Small Claims Court: Process and Costs

Court Fees (England & Wales 2026)

Timeline and Process

Week 1: File Claim Online

Week 2-3: Customer Responds

Week 4-8: Court Hearing (If Defended)

Week 9+: Enforcement (If They Still Won't Pay)

HMRC Bad Debt Relief: What You Can Claim

Who Can Claim Bad Debt Relief

You Must Meet ALL These Criteria:

How to Claim VAT Bad Debt Relief

Step 1: Write Off in Accounts

Step 2: Calculate VAT Relief

Step 3: Claim on VAT Return

Documentation You Need

Tax Deduction for Bad Debt (Non-VAT Businesses)

Writing Off in Your Accounts

1. Create Bad Debt Expense Category

2. Record Write-Off Transaction

3. Add Note with Details

Preventing Future Bad Debt

1. Require Deposits (50% Upfront)

2. Payment on Completion (Not Invoicing Later)

3. Credit Check Commercial Customers

4. Set Clear Payment Terms

The Bottom Line

Track Overdue Invoices Automatically

⚠️ Important Legal Disclaimer