Bad Debt Provision & Loss Tool
Estimate the financial impact of an unpaid commercial debt after potential VAT bad debt relief, direct recoveries, credit-insurance indemnity, policy excess and recovery costs.
Follow the loss from invoice value to residual exposure
The tool separates accounting exposure from potential mitigants. It does not assume that VAT relief or an insurance claim is certain unless the relevant inputs support it.
Your assumptions
Work through each tab, then calculate the indicative net loss.
Debt and provision assumptions
Potential UK VAT bad debt relief
Credit insurance assumptions
Expected recoveries and costs
Build the loss waterfall
The result separates gross exposure, VAT relief, expected debtor recoveries, credit-insurance proceeds, costs and the remaining provision requirement.
Evidence to verify before relying on the result
The commercial loss estimate, VAT claim and insurance recovery each require separate evidence and judgement.
VAT relief file
- Original VAT invoices and evidence VAT was accounted for
- Relevant due and supply dates
- Separate bad debt account and write-off evidence
- Payments, set-offs and security reflected correctly
- Claim timing and record-retention requirements checked
Insurance claim file
- Approved credit limit and policy period
- Indemnity, excess and maximum liability terms
- Notification and overdue-reporting deadlines
- Evidence of collection action and policy compliance
- Recoveries and VAT treated as required by the policy
Provision governance
- Recovery estimates supported by current evidence
- No double counting between security, debtor and insurer
- Insurance receivable recognised only where appropriate
- Provision basis consistent with the reporting framework
- Assumptions approved and reviewed at each reporting date
Recovery decision
- Debt value and age assessed against recovery options
- Disputes separated from inability or unwillingness to pay
- Insolvency and asset-position indicators reviewed
- Limitation and contractual deadlines monitored
- External referral considered before recovery prospects deteriorate
How the calculation works
The result is a management estimate. Statutory accounts may require a different recognition, measurement or presentation approach.
What does the tool calculate?
It starts with the entered gross debt and expected irrecoverable percentage. It then deducts entered security, set-off, expected recoveries, potential VAT relief and expected insurance proceeds before adding unrecoverable recovery costs.
How is VAT bad debt relief estimated?
Where the eligibility checks are satisfied, the tool extracts VAT from the VAT-bearing part of the qualifying unpaid balance using the VAT fraction. Enforceable security and mutual set-off reduce the balance used for the estimate. Businesses using cash accounting generally have not paid output VAT on unpaid invoices, so the tool returns no VAT relief.
Does insurance compensation prevent VAT relief?
The calculator treats insurance proceeds separately from the VAT relief estimate. HMRC guidance states that payment by a bad-debt insurer does not itself affect entitlement to VAT bad debt relief, although all other conditions still need to be met.
How is the insurance estimate calculated?
The selected claim basis is reduced for expected direct recoveries, security and set-off. The covered percentage and any policy limit are applied, followed by the selected excess structure, indemnity percentage and claim-realisation assumption. Actual policies vary materially, so the policy wording overrides this model.
Is an insurance recovery automatically netted against a bad-debt provision?
No. The accounting treatment can depend on whether reimbursement recognition criteria are met, whether the insurance asset is separate from the receivable, the reporting framework and the certainty of recovery. The tool displays an economic net exposure and does not prescribe journal entries.
What happens if money is recovered later?
Later receipts may require reversal of part of a provision or write-off, repayment of VAT bad debt relief to HMRC and adjustment of an insurer's claim or subrogation position. Keep each recovery source separately identifiable.
A provision does not recover the cash
Where a commercial debt remains collectible, early external action may reduce the eventual loss. HK Commercial Debt Recovery provides UK business-to-business debt recovery on a genuine no win, no fee basis, subject to assessment and terms.