Working as a freelancer has its advantages. The problem is you’re responsible for getting paid. You’re the one who has to chase down your employers to get the money you’re owed. This can prove a problem if they’ve disappeared off of the face of the earth or they’re flat-out refusing to pay. Thankfully, you can save money by writing it off your tax bill as a bad debt. In other words, you can get the money you’re rightfully owed.
In this article, we’re going to show you how you can get a tax break when clients don’t pay what they owe you.
Bad Debt Relief
Under the current rules set down by HMRC, bad debts can be written off against annual profits. This means you could fall under a different tax band if you have enough bad debt. In essence, depending on the figures you could gain all the money back in the form of a tax break. It doesn’t always work this way and you could lose out, but you will gain some of the money back that you lost.
There are some conditions relating to this tax break, though.
Companies that Go Bust
To start with, you can only claim against a client if their business has been liquidated as a result of bad debts. In this day and age, this is more common than you think. If you can prove that the company has gone into liquidation, this automatically gives you the right to write off a bad debt against your profits for the year. Now you don’t have to do anything else except put the number down on your return.
A Refusal to Pay
Where it gets more difficult and more time-consuming is when you have to deal with a business that has simply refused to pay you. In this situation, you have to have enough evidence that they have gone out of their way to not pay you. You have to make it clear that you have exhausted every single avenue available to you in your bid to have your invoice paid.
You would need to start by sending them multiple written demands. You can do this through email or through the post. Save copies of every letter you send. If you send one every few weeks for a few months, this is enough to demonstrate to HMRC that you have given the company more than enough chances to pay.
At this point, you have to move on to the next step. You’ll have to consult your legal representation and ask them to take the matter to court. A court summons and an official letter from your solicitor will also prove to HMRC that you have done everything you can to claim the money back.
In the meantime, an unpaid debt may put your business into financial difficulties. Of course, you can’t write off anything until you’ve officially got enough evidence to write a bill off as an unpaid debt. If you need help, you can negotiate with HMRC for temporary relief using an insolvency practitioner. Don’t let the name scare you. They’re there to help companies get back on their feet if they’ve fallen victim to a client who hasn’t paid.
Many of them will speak to you initially free of charge, so don’t worry about getting yourself into further debt.
Overall, this isn’t an issue to bury your head in the sand about. Do everything you can to reclaim the money and go through the proper channels. You can and will get your money sooner or later. Sometimes it’s necessary to do things the hard way.