To write-off a bad debt of an unpaid invoice you will need to open the unpaid invoice and go to Refund> Write off as bad debt and then follow instructions on the screen.
If you are on the accrual VAT scheme then you do not need to take any further steps in order to submit the correct information to HMRC as this is done automatically. If you are on the Cash Accounting scheme, however, then you do not need to account for any VAT on the VAT return. Therefore, you will need to follow the additional steps below in order for the invoice and the bad debt credit note to not appear on the VAT return:
- Ensure the date of the bad debt credit note matches the date on the original invoice.
- Go to Settings> Advanced Settings and ensure the VAT reconciliation is enabled.
- Set the VAT reconciliation date to a date after the invoice and credit note date.
This will ensure that the invoice is now cleared, and no information is sent to HMRC on the VAT return.