Tax guide

How to Write Off Bad Debt as a Freelancer (UK and US Tax Guide)

Sometimes a client simply won't pay. You've sent reminders, threatened legal action, and decided the time and cost of pursuing it further isn't worth it. At that point, you can write off the invoice as a "bad debt" — and in some cases, claim a tax deduction.

⚠️ Before you write it off — have you tried everything?

Bad debt write-offs are a last resort. Tax authorities expect you to have made genuine efforts to recover the debt first. Have you:

→ Sent multiple payment reminders?
→ Issued a formal Letter Before Action?
→ Considered small claims court (cheap and often effective)?
→ Tried a debt collection agency?

🇬🇧 UK: Writing off bad debt (HMRC)

Cash basis accounting (most sole traders)

Under cash basis, you only record income when you actually receive it. If a client never pays, you never included the invoice in your income — so there's nothing to write off. You simply don't have a deduction, but you also haven't paid tax on money you didn't receive.

Traditional accounting (accruals basis)

Under accruals basis, you record income when you invoice, regardless of payment. If the invoice goes unpaid, you can claim a bad debt deduction against your profits. You must be able to show the debt is genuinely irrecoverable.

VAT registered? Claim VAT back too

If you've already paid VAT on the invoice to HMRC and the client doesn't pay, you can reclaim the VAT via a Bad Debt Relief claim — after 6 months from the payment due date.

Evidence HMRC wants

• The original invoice
• Evidence of your collection attempts
• Confirmation the debt has been written off in your accounts
• Evidence the debtor is unable or unwilling to pay

🇺🇸 US: Writing off bad debt (IRS)

Cash basis (most freelancers)

Like the UK, if you use cash basis accounting, you only report income when received. An unpaid invoice was never income — so you can't deduct it. (The IRS says you can't deduct something that was never in income.)

Accrual basis

Under accrual accounting, you reported the income when invoiced. If it goes unpaid, you can deduct it as a bad debt under IRC Section 166. You must show a "bona fide debt" that is wholly or partially worthless.

How to claim

Report on Schedule C (sole proprietors) under "other expenses." Keep documentation: the invoice, contract, payment demands, and evidence the debt is uncollectible.

Step-by-step: writing off a bad debt

Document your collection attempts: Save every email, letter, and reminder you sent. This is evidence for your tax authority.

Decide it's genuinely irrecoverable: There's no strict time limit, but 6–12 months of non-payment with unresponsive client is the typical threshold.

Write it off in your accounts: Create a 'bad debt expense' entry in your bookkeeping software (FreeAgent, QuickBooks, Xero, Wave). Move the invoice from receivables to bad debt expense.

Claim the deduction (accruals basis only): Include it in your Self Assessment (UK) or Schedule C (US) as a bad debt deduction.

UK VAT: claim VAT relief: If you're VAT registered, submit a Bad Debt Relief claim on your VAT return after 6 months from the due date.

Better than writing it off: preventing it

Writing off bad debt recovers some tax. But you've still lost the money. The best outcome is that your invoices get paid — not that you optimise the tax on what you never received.

Automated follow-up resolves most invoices before they become bad debt

Chaser sends escalating follow-ups at day 3, 7, 14, and 30 — capturing the vast majority of late payments before you reach the write-off stage.

Try Chaser free →