26 July 2026 · Customer Side
The Customer's Input-Tax Obligation
VAT bad debt relief is symmetrical, and this page explains the side most customers overlook. If a business recovered input VAT on a supplier's invoice but never paid for it, then once the supplier notifies the customer of the write-off, the customer must reduce its own recoverable input tax by the same VAT amount, in the tax period the notification is received. This is not optional or dependent on whether the customer agrees with the write-off — it is the mirror obligation built into Article 64, and it exists specifically to stop a business permanently keeping input VAT it never actually funded by paying its supplier. Failing to make this reversal understates output tax payable in exactly the same way an unjustified bad debt claim would on the supplier's side.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
Give back what you did not fund
Input VAT recovery is normally based on the expectation that the recipient will pay the supplier the full invoice, VAT included — that is the transaction the input tax deduction is built on. When a customer recovers input VAT on an invoice it never actually pays, it has effectively kept a deduction for VAT it never paid out of its own pocket, which is the mirror image of the supplier's problem. Article 64 closes that gap: once the supplier notifies the customer of the amount written off, the customer must reduce its recoverable input tax by the same VAT figure, in the return covering the period the notification lands. This applies whether the customer disputes the debt or not — the notification itself is what triggers the obligation, not the customer's agreement with it.
- Input VAT recovery assumes the invoice will actually be paid.
- An unpaid invoice means input VAT was kept without being funded.
- Notification from the supplier triggers the reversal automatically.
- The customer's agreement with the write-off is not required.
- Reverse the input VAT in the period the notification is received.
- The reversed amount matches the VAT the supplier claims as relief.
The system balances
The two sides of bad debt relief are designed to net out at the level of the FTA's overall VAT collection. The supplier reclaims the output VAT it paid on a sale it was never paid for, while the customer gives back the input VAT it recovered on a purchase it never paid for — so the FTA is not left funding a VAT position that no longer reflects any real payment between the two businesses. Without the customer-side reversal, bad debt relief would create a one-sided windfall: the supplier would get its VAT back while the customer kept a deduction it never actually paid for, and the FTA would effectively be funding the same VAT twice.
- Supplier reclaims output VAT it paid but was never paid for.
- Customer repays input VAT it recovered but never paid for.
- The two adjustments are meant to offset at FTA level.
- Without the reversal, relief would be a one-sided windfall.
- Notification is the single event that links both sides.
- The FTA can cross-check supplier claims against customer reversals.
What a customer should actually do on notification
When notification arrives from a supplier, the practical steps for the customer are straightforward but easy to miss in the day-to-day flow of paperwork. First, confirm the amount and VAT figure the supplier is notifying against your own records of the invoice and whatever, if anything, was paid. Second, identify the return period in which the notification was received — that is the period the reversal belongs in, not the period of the original invoice or an earlier period. Third, reduce recoverable input tax by that VAT amount in that period's return, and keep the notification itself as the supporting record for why the adjustment was made, in exactly the same way the supplier keeps evidence for its own claim.
- Confirm the notified amount against your own invoice records.
- Identify the period the notification was actually received in.
- Reduce recoverable input tax by that VAT amount in that period.
- Keep the notification itself as the supporting evidence.
- Do this even if you dispute or intend to eventually pay the debt.
The risk of ignoring a notification
Ignoring a supplier's notification does not make the obligation go away — it simply leaves the customer's VAT return overstating recoverable input tax for as long as the reversal is not made. Because a bad debt relief claim and the matching customer reversal both leave a paper trail — the supplier's notification and its own Box 1 claim — an FTA audit can cross-check one against the other, and a customer that never reversed its input tax after being properly notified is exposed to an assessment plus penalties on top of simply repaying the VAT. If the debt is later paid in full, the customer can then reclaim the input VAT again in the period it actually pays, so the reversal is not a permanent loss — only a correction for the period the invoice sat unpaid.
- An unreversed input tax deduction overstates recoverable VAT.
- The FTA can cross-check a supplier's claim against the customer's records.
- A missed reversal risks assessment and penalties, not just the VAT.
- Paying the debt later lets the customer reclaim the input VAT again.
Related guides
Frequently Asked Questions
Common questions from customers who have received a bad debt write-off notification.
Do I repay input VAT if I did not pay my supplier?
Yes. If you recovered input VAT on the supplier's invoice and are then notified of the amount written off, you must reduce your recoverable input tax by that same VAT amount in the period you receive the notification.
What triggers my obligation?
The supplier's notification to you of the amount written off — this is the single event that starts the clock, not the age of the debt or your own view of whether it will eventually be paid.
How much do I reverse?
The same VAT amount the supplier is claiming as bad debt relief on their own return — the figures on both sides of the transaction are meant to match exactly.
Do I have to agree with the write-off first?
No. The obligation to reverse input VAT is triggered by receiving the notification, regardless of whether you accept the supplier's position on the debt or intend to dispute or eventually pay it.
Can I get the input VAT back if I later pay?
Yes. If you subsequently pay the outstanding amount to the supplier, you can reclaim the input VAT again, in the return period covering when the payment is actually made.
What happens if I ignore the notification?
The reversal is still legally required, and an FTA review can cross-check the supplier's claim against your records — an unreversed deduction risks an assessment and penalties on top of the VAT itself.
Can Exiloz manage both sides?
Yes. We handle the supplier's bad debt relief claim and, where you are the customer receiving a notification, the correct input-tax reversal, so both sides of the transaction stay compliant.
Get the customer side right
Exiloz manages both the supplier's bad debt relief claim and the customer's input-tax reversal, so neither side of the transaction is left exposed.