Credit note or bad debt relief — what's the difference, and when do you use each?

Both mechanisms adjust VAT you've already declared to the Federal Tax Authority, but each one solves a completely different problem, with its own conditions and its own deadline. Confusing them is one of the more common filing mistakes — especially when a business owner treats "the customer didn't pay" and "the invoice was wrong to begin with" as the same situation, when they're not, and using the wrong tool for either one can put the whole recovery at risk.

A tax credit note is used when the value of the transaction itself changes after the invoice was issued: the supply is cancelled entirely, a later discount reduces the price, goods are returned in full or in part, or you discover VAT was calculated incorrectly from the start (charging 5% on a supply that should have been zero-rated or exempt, for instance). Here, the original invoice's recorded value genuinely needs correcting, and the note must be issued within exactly 14 days of the triggering event, clearly referencing the original invoice number and date — miss that window, and the note loses its standing as a valid adjustment document.

Bad debt relief is an entirely different situation in substance: the invoice was correct in every respect when it was issued — the price was right, the VAT was right, nothing about the underlying deal changed — and the VAT on it was properly charged and remitted to the authority, but the customer simply failed or refused to pay. There's no correction to the invoice's value or its line items here; instead, once more than six full months have passed since the invoice date, a genuine documented attempt to collect has been made during that period, the amount (in full or in part) is actually written off in your accounting records, and the customer has been formally notified of the exact amount written off along with the invoice number, you can recover the VAT through an adjustment on your return — with no requirement that the customer acknowledge or respond to that notice.

The practical question that settles which one applies in any given case: did the value of the transaction itself change, or was it wrong from the start? If yes, the tool is a credit note, within a strict 14-day window from the triggering event — miss the deadline and the document's validity is lost. Was the transaction correct as recorded, and did the customer simply fail to pay despite a real attempt to collect? If yes, the tool is bad debt relief, and only after the full six-month wait, not before. It's worth being explicit that bad debt relief is never a workaround for missing the 14-day credit note deadline when the real issue was a pricing error in the invoice itself — using the wrong mechanism for the wrong situation can get the entire claim rejected on review.

RASEEKH reviews every overdue customer account or invoice needing correction before deciding which route genuinely fits the circumstances, so a recovery you're legitimately owed doesn't get lost to picking the wrong mechanism or missing its deadline.