Bad debt relief – when your customer does not pay
20 Feb 2026
Running a business is not only about success but also risk. One of the hardest scenarios for an entrepreneur is issuing an invoice, paying tax on it and then not receiving payment from the customer for months.
In such situations bad debt relief can help. It is a mechanism that lets you “unfreeze” money already paid to the tax office.
What exactly is bad debt relief?
In short: if your customer is late with payment, you can reduce your tax (VAT and income tax) by the amount of the unpaid invoice. You do not finance tax for a dishonest or insolvent client.
When can you use the relief? (Conditions)
The rules are precise. To recover tax, specific criteria must be met:
- Payment deadline: At least 90 days must pass from the due date on the invoice (or in the contract).
No payment: The receivable has not been settled or transferred (e.g. factoring) in any form.
Debtor status (VAT): The debtor must not be in bankruptcy or liquidation (income tax rules are somewhat more flexible).
Time limit: No more than 3 years from the invoice date (counting from the end of the year of issue).
How does it work in practice?
The process differs slightly depending on which tax you want to recover:
After 90 days from the due date, in the return for the period when the deadline expired, you correct the tax base and tax due.
Important: If the customer pays after your correction, you must “return” that VAT in the return for the month when you received the money.
The 90-day rule also applies here. You can reduce the tax base (income) by the receivable amount. If you show a loss, the relief can increase it.
Trap for the debtor: duty to correct
Bad debt relief is not only a benefit for the creditor but also a burden for the debtor.
If an entrepreneur has not paid an invoice within 90 days, they must correct output tax (return previously deducted VAT). The debtor must do this regardless of whether the creditor used the relief. Failure can lead to tax penalties.
Why is it worth remembering?
In times of payment delays, bad debt relief is real support for your company’s liquidity.
- You recover cash you already paid to the state.
You improve cash flow.
You motivate the debtor – knowing they must return VAT to the office often speeds up payment.
How can we help?
Monitoring payment deadlines and the 90-day period can be tedious. As your accounting firm we check your receivables and make sure you do not pay tax on money you never received.
Have invoices nobody paid? Contact us – we will check if we can recover your tax in the next settlement!
Certified Accountant (C.I.K.) no. 78963/2025. President of the Management Board of NWAGNER TAX & ACCOUNTING - FINANCIAL ADVISOR Sp. z o.o. Finance Director at MasterKOR Korepetycje Sp. z o.o. President of the NWAGNER Society & Business Foundation. President of the Management Board of NWAGNER Investments & Technologies Sp. z o.o. Questions for me? Write to: norbert@biuro-rachunkowe-nwagner.eu
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