How to Claim Bad Debt Relief for Unpaid Invoices (UK Freelancers)

Last updated: May 2026

What is Bad Debt Relief?

Bad debt relief is a tax adjustment that allows sole traders and freelancers to reclaim tax paid on income they never actually received.

Here's the problem it solves:

• You invoice a client £1,000 for work completed in March 2025
• Under accruals basis accounting, you include that £1,000 in your 2024/25 Self Assessment return
• You pay tax on it (let's say 20% income tax + 9% Class 4 NI = £290 in total)
• The client never pays. Six months later, they've gone into liquidation. The debt is now irrecoverable.

Without bad debt relief, you'd have paid £290 in tax on £1,000 you never received. That's clearly unfair.

Bad debt relief lets you reclaim that tax by reducing your taxable profit in the year you write off the debt. You claim a £1,000 deduction in your 2025/26 return, which effectively cancels out the £1,000 income you declared (and paid tax on) the year before.

Who Can Claim Bad Debt Relief?

Bad debt relief is available to:

• Sole traders using accruals basis accounting (not cash basis — more on that below)
• Freelancers and self-employed professionals who invoice clients and declare income when invoiced (not when paid)
• Small businesses registered as sole traders or partnerships (not limited companies — they have different bad debt relief rules)

When Can You Claim Bad Debt Relief?

To claim bad debt relief, the debt must meet three HMRC conditions:

1. The Income Was Included in a Previous Tax Return

You must have already declared the income (and paid tax on it) in a previous Self Assessment return. You can't claim relief for an unpaid invoice you haven't yet reported to HMRC.

Example: You invoiced £2,000 in March 2025 (tax year 2024/25), declared it in your January 2026 Self Assessment, and paid tax on it. The client still hasn't paid by December 2025, and you've now confirmed the debt is irrecoverable. You can claim bad debt relief in your 2025/26 Self Assessment (filed by January 2027).

2. The Debt Has Become Irrecoverable

This is the key test. "Irrecoverable" does not mean "the client is 30 days late paying." It means you've genuinely exhausted reasonable recovery efforts and the debt is now realistically unrecoverable.

HMRC considers a debt irrecoverable when:

• The client has entered liquidation or bankruptcy — you're unlikely to recover anything
• You've obtained a County Court Judgment (CCJ) but cannot enforce it (the client has no assets or income to seize)
• The client has disappeared — you've tried to trace them but cannot locate them
• The cost of recovery exceeds the debt — e.g., pursuing a £300 invoice through the courts would cost £500 in legal fees
• The debt is old and genuinely unrecoverable — e.g., the client has ignored all contact for 12+ months, and you've decided to write it off

What doesn't count as irrecoverable:

• The invoice is 30, 60, or even 90 days overdue, but the client is still responding to emails
• You've sent one chaser email but haven't yet escalated to formal demand or legal action
• The client is slow-paying but not refusing to pay

3. You Have Evidence

HMRC may ask you to prove the debt is genuine and irrecoverable. You should keep:

• The original invoice (showing the amount, date, and client details)
• Proof you declared the income (the Self Assessment return where it was included)
• Evidence of recovery attempts (chaser emails, formal letters, proof of CCJ, liquidation notice, etc.)
• Your decision to write it off (e.g., a note in your accounting records stating "Debt written off as irrecoverable — client liquidated")

Keep this evidence for at least 5 years after the 31 January filing deadline for the return in which you claimed bad debt relief.

How to Claim Bad Debt Relief on Your Self Assessment

Bad debt relief is claimed as a business expense in the tax year you write off the debt.

Here's the step-by-step process:

Step 1: Calculate Your Total Bad Debts

Add up all debts you've written off as irrecoverable during the tax year (6 April to 5 April).

Example:

• Client A: £1,200 invoice from March 2024, written off December 2025 (client liquidated)
• Client B: £800 invoice from July 2024, written off January 2026 (client disappeared, cannot trace)
• Total bad debts for 2025/26 tax year: £2,000

Step 2: Enter It on Your Self Assessment Return

Bad debt relief is entered in Box 31 of the self-employment (full) pages (form SA103F), labelled "Other allowable business expenses".

You should also add a note describing what the expense is. There are two places to do this:

• In the online return: There's usually a text box next to Box 31 where you can write "Bad debt relief — unpaid invoices written off"
• On the paper return: Use the "Any other information" section on page 8 of the main SA100 form

Example entry:

Step 3: Reduce Your Taxable Profit

The bad debt relief amount reduces your taxable profit for the year, which in turn reduces your income tax and National Insurance bill.

Example:

• Your total self-employment income for 2025/26: £45,000
• Your total allowable expenses (including bad debt relief of £2,000): £18,000
• Taxable profit: £27,000 (£45,000 - £18,000)

Without bad debt relief, your taxable profit would have been £29,000 — so you've saved approximately £580 in income tax and NI (assuming 20% income tax + 9% Class 4 NI).

Step 4: Keep Your Evidence

Store the following in your Self Assessment records:

• Copies of the unpaid invoices
• Proof of income declaration in the previous return
• Evidence of recovery attempts (emails, letters, CCJ, liquidation notice)
• A note in your bookkeeping records stating when and why each debt was written off

HMRC can ask to see this evidence for up to 5 years after the filing deadline (or up to 20 years if they suspect fraud, though that's rare for legitimate bad debt claims).

Common Bad Debt Relief Scenarios

Scenario 1: Client Goes Into Liquidation

You invoiced £3,000 to a limited company in January 2025 (tax year 2024/25). You declared it in your Self Assessment and paid tax on it. In November 2025, the company enters liquidation. You're listed as a creditor, but the liquidators inform you there are no funds to distribute.

Action: Claim £3,000 bad debt relief in your 2025/26 Self Assessment (filed by January 2027). Keep the liquidation notice and creditor letter as evidence.

Scenario 2: County Court Judgment (CCJ) Cannot Be Enforced

You invoiced £1,500 to an individual client in June 2024 (tax year 2024/25). They ignored all payment requests. You obtained a County Court Judgment in March 2025, but bailiffs report the client has no assets or income to seize.

Action: Claim £1,500 bad debt relief in your 2025/26 Self Assessment (filed by January 2027). Keep the CCJ paperwork and bailiff's report as evidence.

Scenario 3: Client Disappears

You invoiced £800 to a sole trader in September 2024 (tax year 2024/25). They've stopped responding to emails, their phone is disconnected, and you cannot trace them. You decide to write off the debt in February 2026.

Action: Claim £800 bad debt relief in your 2025/26 Self Assessment (filed by January 2027). Keep copies of your chaser emails and a note explaining you've exhausted reasonable attempts to trace them.

Scenario 4: Debt Is Too Small to Pursue

You invoiced £250 to a client in April 2024 (tax year 2024/25). They've ignored all payment requests. Pursuing them through County Court would cost £300+ in fees, so you decide it's not economical to continue.

Action: Claim £250 bad debt relief in your 2025/26 Self Assessment (filed by January 2027). Keep your chaser emails and a note explaining the cost of recovery exceeds the debt.

What If You Recover the Debt Later?

If you claim bad debt relief and then later recover all or part of the debt, you must declare the recovered amount as income in the tax year you receive it.

Example:

• You claimed £1,000 bad debt relief in your 2025/26 return (filed January 2027)
• In August 2026, the client unexpectedly pays £600
• You must declare £600 as income in your 2026/27 Self Assessment (filed January 2028)

This prevents a "double relief" where you'd effectively get the tax benefit twice — once when you claimed bad debt relief, and again by not declaring the recovered income.

Cash Basis vs Accruals Basis: Why It Matters

Bad debt relief is only available to sole traders using accruals basis accounting. If you use cash basis (the default for most sole traders earning under £150,000), you cannot claim it.

Here's why:

• Cash basis: You declare income when you receive payment. If a client doesn't pay, you never declared the income in the first place — so there's no tax to reclaim.
• Accruals basis: You declare income when you invoice the client (regardless of when they pay). If they don't pay, you've already paid tax on that income — so bad debt relief lets you reclaim it.

How to Prevent Bad Debts (Practical Tips)

Bad debt relief helps reclaim tax, but it doesn't get your money back. Here are some practical steps to reduce the risk of unpaid invoices:

• Use clear payment terms: State "Payment due within 14 days" (or whatever terms you choose) on every invoice
• Send invoices promptly: Don't wait weeks after completing work — invoice immediately while the project is fresh
• Chase early: Send a polite reminder on the due date, not 30 days after
• Escalate systematically: First reminder at 7 days overdue, formal letter at 14 days, final notice at 21 days, County Court at 30 days
• Ask for deposits on large projects: A 50% upfront deposit reduces your risk exposure
• Use contracts: A signed contract (even a simple one-page agreement) makes County Court action much easier
• Check credit history for large clients: If you're taking on a £10k+ project, consider checking the client's credit rating or Companies House filing history
• Stop work if payment stops: If a client misses payment on invoice 1, pause work on project 2 until they catch up

For more guidance on invoicing and payment terms, see our guide: How to Invoice as a Freelancer in the UK.

Frequently Asked Questions

Can I claim bad debt relief if I'm on cash basis?

No. Cash basis accounting only declares income when you receive payment, so unpaid invoices were never counted as income. There's no tax to reclaim.

How long do I have to wait before writing off a debt?

There's no fixed time limit. HMRC requires the debt to be "irrecoverable" — meaning you've taken reasonable steps to recover it and it's genuinely unrecoverable. For some debts (e.g., client liquidated), this is immediate. For others (e.g., client ignoring emails), you may need to wait 6-12 months and pursue County Court action before HMRC will accept the debt is irrecoverable.

What if I write off a debt and then the client pays?

If you recover all or part of the debt after claiming bad debt relief, you must declare the recovered amount as income in the tax year you receive it.

Can I claim bad debt relief for VAT?

Yes, but it's a separate process. If you're VAT-registered and you've written off a debt as irrecoverable, you can reclaim the VAT you paid to HMRC on that unpaid invoice. You do this by adjusting your VAT return (not your Self Assessment). See HMRC guidance: VAT relief on bad debts.

Where do I enter bad debt relief on my Self Assessment?

Enter it in Box 31 ("Other allowable business expenses") on the self-employment (full) pages (SA103F), and add a note describing it as "Bad debt relief".

What evidence do I need to keep?

Keep the original invoice, proof you declared the income in a previous return, evidence of recovery attempts (chaser emails, formal letters, CCJ, liquidation notice), and a note in your records explaining when and why the debt was written off. Keep this for at least 5 years.

Track Unpaid Invoices and Bad Debts Automatically

Keeping track of unpaid invoices, chasing clients, and documenting bad debt relief claims can be time-consuming. Our UK Freelancer Business OS includes:

• Invoice tracker with overdue alerts and payment status
• Client payment history to spot slow payers early
• Bad debt log with evidence tracking (invoice date, recovery attempts, write-off date)
• Self Assessment expense summary with automatic bad debt relief calculation
• Chaser email templates for polite but firm follow-ups

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