Tax relief - Bad debt write off

Question

Hi all,
For a customer with bad debt, it appears standard practice is to use a journal entry to write the debt off to a "Bad Debt" GL account, and then manually reconcile BP balance to zero.
However, the VAT(consumption tax) for the written off amount will still be showing as owed to the government, and will still appear in the TAX report.
In the UK as in other countries, I assume there is relief on bad debt, so the VAT(consumption tax) needs to be written off as well. The only correct way I can think of doing this at the moment is doing a service type credit note with matching tax code of the original invoice specifying the bad debt GL account. In this way, the VAT will also be reversed.
Can anyone advise what method they use, or if there is a proper methodology to do this?
Thanks,
Raj

Answer 1

Hi Gordon,
Thanks for the reply. So as an example, am I correct in thinking the below is the "correct way" to do a write off (if we wanted to avoid doing journal entries):
AR INVOICE - Item Type
Item A x 1 @GBP100.00
VAT/TAX @GBP17.50
-->
AR CREDIT NOTE - Service Type
Bad Debt Write Off     xxxxxxxxxx (GL a/c no)    @GBP100.00
VAT/TAX @GBP17.50 (assuming we specify identical tax code)
-->
Internal reconciliation to zero
Thanks,
Raj