When a client does not pay their invoice, it can have a direct impact on your profit and cash flow.
As a sole trader, it is essential to understand when and how to treat an unpaid invoice for tax purposes, as well as the possibilities for VAT recovery. We will explain everything in this article.
As soon as you issue an invoice for a sale or a service:
You create a receivable from your client
This receivable must be recorded as revenue and therefore as income in your accounts
➡️ This remains true even if the invoice is not paid.
⚠️ Warning ⚠️ |
If you believe that your client may not pay:
you can reclassify the invoice as a doubtful receivable
To avoid being taxed on uncertain income:
you must record a value reduction on trade receivables (you can ask your accountant to do this for you outside of Accountable)
👉 This neutralizes the impact of the invoice on your result.
the value reduction must appear in a separate item in your annual inventory
For the loss to be accepted for tax purposes, several conditions must be met:
✔️ 1. Individualized receivable
It must relate to specific invoices; it cannot be a general estimate.
✔️ 2. Proven probability of loss
You must be able to provide evidence:
all reminders sent to the client
all formal notices (default notices)
all exchanges with the client
If the receivable is considered irrecoverable, you may reduce your taxable profit.
👉 In that case, you must attach statement 204.3 (see here).
An invoice can be definitively deducted as a professional expense when the loss is:
certain
definitive
your client has gone bankrupt
recovery has become impossible after several years of attempts
👉 In this case, the invoice is definitively removed from your income.
You can recover VAT already paid in two cases:
in case of the client’s bankruptcy
if the invoice remains unpaid despite your actions
via your VAT return (boxes 62 or 64)
To recover VAT, you must:
issue a credit note
prove your recovery actions:
reminders
formal notice
actions taken
💡 Practical advice: It is recommended to seek confirmation from the tax authorities to ensure that your actions are sufficient to recover VAT. |
✔️ An unpaid invoice remains income until it is properly treated
✔️ You can anticipate a loss via a value reduction
✔️ Final deduction requires a certain and proven loss
✔️ VAT is recoverable under strict conditions
✔️ Supporting documents are essential (keep everything).
Author - Valesca Wilms
As content marketing lead at Accountable Belgium, Valesca writes about freelancing, self-employment, and taxes based on her own experience as a freelancer.
Who is Valesca ?Thank you for your feedback!
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