Do I repay VAT on supplier bills I have not paid

Yes, if the bill is still unpaid six months after the later of the supply date and the date payment was due. Section 26A of the VAT Act 1994 treats you as never having been entitled to the input tax on the unpaid part, so you reverse it in your VAT account. When you later pay the supplier, you reclaim the VAT again in the return for the period in which you pay.

What does the six month rule actually say?

Section 26A(1) of the VAT Act 1994 applies where you have claimed credit for input tax and all or part of the price of that supply is still unpaid at the end of the six months following the relevant date. From the end of that six month period you are taken not to have been entitled to the input tax referable to the unpaid amount. Section 26A(2) defines the relevant date as the date of the supply or, if later, the date on which the sum became payable.

The detailed mechanics are in regulations 172F to 172J of the VAT Regulations 1995. Regulation 172F limits them to supplies made on or after 1 January 2003, and regulation 172G repeats the six month period. HMRC’s guidance is in section 4 of VAT Notice 700/18, which calls the process clawback.

The rule is the mirror image of bad debt relief. Your supplier can claim relief on a debt six months overdue (see bad debts and VAT relief), and you repay the matching input tax. Notice 700/18 paragraph 4.1 points out that suppliers do not have to tell you they are claiming, so you have to monitor your own payment times.

When does the six months start?

Paragraph 4.2 of Notice 700/18 says the relevant date is the date of the supply or, if later, the due date for payment. Paragraph 4.3 adds the practical points:

• If your supplier gives you credit terms, for example 30 or 60 days, the six months run from the end of those terms.
• Without any separate agreement, you can treat the invoice date as the due date.
• In the rare case where the invoice is issued more than 14 days after the supply and the due date falls before the invoice is issued, repayment is due six months after the supply date or, if later, the date payment was due.

Disputes are covered by paragraph 4.4. If the supplier agrees to extend the due date for the disputed amount, the six months run from the extended date. If it does not, you repay only the unpaid element six months after the original relevant date, and your entitlement returns if you later agree to pay.

How much input tax do you have to repay?

Regulation 172H(3) sets the amount: the input tax you deducted, multiplied by the unpaid consideration at the end of the six months, divided by the total consideration for the supply. Because the formula starts from what you actually deducted, a partly exempt business repays only a share of the VAT it recovered, not the full VAT on the invoice. Notice 700/18 paragraph 4.5 gives this example.

Item	Amount
Supply received, including VAT	£1,200 (£1,000 plus £200 VAT)
Paid by the relevant date	£500
Unpaid amount	£700
Repayment if £200 was deducted	£200 × 700/1,200 = £116.66
Repayment if only £100 was deducted	£100 × 700/1,200 = £58.33

How do you show the repayment on your VAT return?

Regulation 172H(2) requires a negative entry in the VAT allowable portion of your VAT account for the accounting period in which the six month period ends. Notice 700/18 paragraph 4.6 says this reduces box 4 of the return by the amount repaid (see VAT return boxes). It is not shown as output tax in box 1.

Regulation 172H(4) says the adjustment is not to be treated as an error correction under regulations 34 and 35, so it goes through the current return in the normal way rather than through the error correction rules. A simple control is to run an aged creditors report at each quarter end and list every invoice that has passed, or will pass during the quarter, six months beyond its due date.

How do you reclaim the VAT once you pay?

Regulation 172I lets you restore the deduction once you have made the repayment entry, submitted that return and paid the VAT due for it, and then paid all or part of the supplier’s bill. You make a positive entry in the VAT allowable portion of your account for the period in which you pay. The amount is the input tax you repaid, multiplied by the payment, divided by the consideration that was unpaid at the end of the six months. Notice 700/18 paragraph 4.7 tells you to include it in box 4 of the return for the period in which the payment is made.

Where you owe the same supplier for several invoices, regulation 172J applies the bad debt attribution rule in regulation 170. A payment is set against the earliest supply first, and then later ones in date order, unless you allocated it to a particular invoice when paying and paid that invoice in full. Notice 700/18 repeats this. Allocating payments clearly on remittance advices avoids reclaiming VAT against the wrong invoice.

Who is not caught by the rule?

• Cash accounting users. Under regulation 57(b) a business on the cash accounting scheme reclaims input tax only when it pays, so regulation 172H(5) disapplies the repayment rule. See the cash accounting scheme.
• Businesses in insolvency. Section 26AA disapplies section 26A where no insolvency procedure applied at the time of the supply, one took effect during the six month period, and HMRC has been told in writing by the person authorised to deal with the insolvent business. The relief is withdrawn if a bankruptcy order is annulled or a voluntary arrangement ends early. This replaced an earlier concession that Notice 700/18 paragraph 4.9 still describes.
• Older supplies. Regulation 172F limits the current rules to supplies made on or after 1 January 2003.

A buyer who takes over a business and its VAT registration number on form VAT68 inherits the seller’s obligations. Notice 700/18 paragraph 4.8 and Notice 700/9 both say the buyer must repay input tax the seller claimed on purchases still unpaid after six months. That is a point for due diligence on any transfer of a going concern where the registration moves across.

What does this look like in practice?

Illustration only. A VAT registered company files quarterly returns for periods ending 31 March, 30 June, 30 September and 31 December. It receives a £6,000 plus £1,200 VAT invoice dated 10 January with 30 day terms, so payment is due on 9 February. It reclaims the £1,200 in its March quarter. Cash is tight and nothing is paid.

• The six months after 9 February end in early August, inside the September quarter. The company makes a negative entry of £1,200 in box 4 of its September return.
• In November it pays £3,600 of the £7,200 owed. In its December return it reclaims £1,200 × 3,600/7,200 = £600.
• When it pays the remaining £3,600 the following February, it reclaims the other £600 in that quarter.

Had the company been partly exempt and recovered only £900 originally, the clawback would have been £900 and each restoration £450.

What mistakes come up most often?

• Waiting for the supplier to say something. The duty to repay arises automatically, whether or not the supplier claims bad debt relief. Old creditor balances with VAT still claimed are the kind of error a VAT compliance check can uncover.
• Reversing the whole VAT on a partly paid invoice. Only the VAT referable to the unpaid part is repaid.
• Using the gross VAT on the invoice for a partly exempt business. The calculation starts from the input tax you actually deducted.
• Putting the repayment in box 1. It is a reduction of input tax in box 4.
• Forgetting to reclaim after payment. The entitlement only returns when you make the positive entry for the period of payment, so link supplier payments to your clawback list.
• Treating a disputed bill as exempt from the rule. Unless the supplier agrees to extend the due date, the undisputed and disputed parts both count from the original relevant date.

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Related Accountapedia entries

• VAT on invoices in a foreign currency
• Called up, paid up and unpaid share capital
• How VAT works: output tax and input tax
• Holding companies and VAT recovery
• Can you appeal a penalty you have already paid

Sources

• legislation.gov.uk: Act 1994 c. 23, section 26A
• legislation.gov.uk: SI 1995/2518, regulation 172F
• legislation.gov.uk: SI 1995/2518, regulation 172G
• legislation.gov.uk: SI 1995/2518, regulation 172H
• legislation.gov.uk: SI 1995/2518, regulation 57
• legislation.gov.uk: SI 1995/2518, regulation 172I
• legislation.gov.uk: SI 1995/2518, regulation 172J
• legislation.gov.uk: SI 1995/2518, regulation 170
• legislation.gov.uk: Act 1994 c. 23, section 26AA
• GOV.UK: Vat notice 70018 relief from vat on bad debts

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.