How to Write Off a Bad Debt
To write off a bad debt, click menu File > New > Credit Note. The Credit Note window will be shown:
Enter the same details as for a credit note, except use 'Bad Debts Expense' in the Account column. The VAT details would normally be 'Purchase of Goods or Services from UK Supplier' - this ensures the VAT amount appears in Box 4 of the VAT return. If your business is registered for the Flat Rate Scheme for VAT, click the small up arrow next to the VAT Treatment field and remove the tick next to 'Flat Rate Scheme applies to this transaction'.
Click OK to save the credit note.
Now you need to allocate the credit to the outstanding invoices. Navigate to the Invoices list (menu Window > Invoices) and select the credit note you just created. Then click File > New > Allocate Selected Credit:
Tick the invoices you want to write off and click OK.
If you're registered for the Flat Rate Scheme for VAT and use the 'cash' method to calculate turnover:
The above process will affect both Box 1 and Box 4 of your VAT return. You should manually reduce both of these boxes by the 'flat rate' VAT amount. This adjustment will not affect the VAT amount due to HMRC (Box 5).