10. Adjustments for bad debts and for early termination of hire purchase agreements

(1) In this Regulation—

“early termination”, in relation to a hire purchase agreement, means the termination of the hire purchase agreement on a date prior to the date fixed for such termination under that agreement and the return of the goods which are subject to that agreement;

“part payment” means the amount of money or the value of goods traded in by the customer, which amount or value is shown in the hire purchase agreement as representing that part of the sale price of goods that is not being financed under the terms of the hire purchase agreement;

“sale price” means the price shown in the hire purchase agreement which is inclusive of tax, and vehicle registration tax where appropriate, and which is the price for which the goods would be sold to a customer if their purchase were not financed in whole or in part under a hire purchase agreement.

(2) In a case in which section 39(2) of the Act applies by reason of the default of a debtor, where—

(a) the consideration, exclusive of tax, actually received by an accountable person in relation to the supply by that person of any goods or services is less than the amount on which tax was chargeable in respect of such supply, or

(b) no consideration is actually received,

then, subject to the conditions in paragraph (3), relief in respect of the tax attributable to the deficiency (in this Regulation referred to as a “bad debt”) may be claimed in accordance with this Regulation.

(3) An accountable person who has accounted for tax in respect of a supply covered by paragraph (2) may subsequently claim bad debt relief for the tax attributable to the bad debt, where—

(a) the accountable person has taken all reasonable steps to recover the bad debt,

(b) the bad debt is allowable as a deduction under section 81(2)(i) of the Taxes Consolidation Act 1997 (No. 39 of 1997) in cases where the accountable person is chargeable to tax under Case I or II of Schedule D of that Act,

(c) the bad debt has been written off in the financial accounts of the accountable person and the requirements of Regulation 27(1)(m) in respect of that debt have been fulfilled by that accountable person, and

(d) the person from whom the debt is due is not connected with the accountable person at any time in the period from the date the supply giving rise to the debt is made to the date on which the debt is written off in the financial accounts of the accountable person, and the question of whether a person is connected with the accountable person shall be determined in accordance with section 97(3) of the Act.

(4) The amount of the relief which an accountable person may claim in respect of a supply covered by paragraphs (2) and (3), which is not a supply within the meaning of section 19(1)(c) of the Act, is calculated in accordance with the following formula:

A	×	B
		100 + B

where—

A is the amount that is outstanding from the debtor in relation to the taxable supply, and

B is the percentage rate of tax, specified in section 46(1) of the Act, which was applied to the supply in question.

(5) (a) The amount of the relief that an accountable person may claim in respect of a supply covered by paragraphs (2) and (3), which is a supply within the meaning of section 19(1)(c) of the Act (in this Regulation referred to as a “supply of the goods under the hire purchase agreement”), is calculated in accordance with the following formula:

(C - D)	×	(E - F)
		C

where—

C is the sum of all the amounts scheduled for payment by instalment under the hire purchase agreement,

D is the total amount paid by the customer against the instalments scheduled for payment under the hire purchase agreement up to and including the date on which the bad debt is written off in the financial accounts of the accountable person,

E is an amount equal to the amount of tax accounted for by the accountable person on the supply of the goods under the hire purchase agreement, and

F is an amount equal to the tax attributable to a part payment shown in the hire purchase agreement calculated in accordance with subparagraph (b).

(b) The tax attributable to a part payment is calculated in accordance with the following formula:

G	×	E
		H

where—

G is an amount equal to the part payment,

E is an amount equal to the amount of tax accounted for by the accountable person on the supply of the goods under the hire purchase agreement, and

H is the sale price of the goods.

(6) In a case in which section 39(2) of the Act applies by reason of the return of the goods by a customer to his or her supplier as part of an early termination of a hire purchase agreement, relief in respect of the supply of the goods under the hire purchase agreement may, subject to section 39(4) of the Act, be claimed in accordance with paragraph (7).

(7) The amount of the relief that an accountable person may claim in respect of a supply of the goods referred to in paragraph (6) is established by—

(a) calculating the tax attributable to the part payment in accordance with the formula in paragraph (5)(b), and

(b) calculating, in accordance with the following formula, the tax attributable to the sum of the total amount paid by the customer against the instalments scheduled for payment under the hire purchase agreement and any amount paid by the customer as part of the early termination of that agreement:

J	×	(E - K)
		C

where—

J is the total amount paid by the customer against the instalments scheduled for payment under the hire purchase agreement up to and including the prior date agreed under the early termination plus any amount paid by the customer as part of the early termination,

E is an amount equal to the amount of tax accounted for by the accountable person on the supply of the goods under the hire purchase agreement,

K is an amount equal to the amount of tax attributable to the part payment shown in the hire purchase agreement calculated in accordance with paragraph (5)(b), and

C is the sum of all the amounts scheduled for payment by instalment under the hire purchase agreement,

and then subtracting the sum of the amounts calculated in accordance with subparagraphs (a) and (b) from the tax accounted for by the accountable person on the supply of the goods under the hire purchase agreement.

(8) Notwithstanding paragraphs (4), (5) and (7), the accountable person may, subject to the prior agreement of the Commissioners, use any other method of calculating the relief that correctly reflects the tax appropriate to the amount outstanding.

(9) An accountable person is entitled to claim the total amount of relief calculated in accordance with paragraph (4), (5), (7) or (8), as if that amount were tax deductible in accordance with Chapter 1 of Part 8 of the Act for the taxable period for which a claim is made.

(10) Where an accountable person, who has claimed relief in respect of any bad debt in accordance with this Regulation, subsequently recovers all or part of that debt, then—

(a) the amount so recovered is treated as inclusive of tax,

(b) the accountable person is liable to account for the tax on the amount so recovered, and

(c) that tax is due and payable by the accountable person for the taxable

period in which the amount is so recovered.