VAT & Assigned Debt

The European Court of Justice decision in Mokoryte (2026) addresses a question that arises more often than might be expected in insolvency and receivables finance contexts: where a supplier has made a taxable supply, accounted for VAT, and subsequently assigned the debt to a third party, who is entitled to claim bad debt relief if the debt goes unpaid?

The answer from Mokoryte is the original supplier. The right to reduce the taxable amount where a debt becomes irrecoverable belongs to the person who made the supply and accounted for the output tax. Assigning the receivable to a third party does not transfer that VAT entitlement with it. The assignee, having not accounted for the VAT in the first place, cannot claim the relief simply because it now owns the debt.

The principle aligns with the UK position on bad debt relief. Relief is available only to the supplier that originally accounted for VAT to HMRC. Where a business intends to assign a debt, any bad debt relief claim should be considered and made before the assignment takes place. Once the receivable has transferred, the window for the original supplier to act may have closed, and the assignee has no standing to make the claim.

This has practical implications across a range of commercial arrangements - invoice discounting, debt factoring, insolvency assignments, and subcontractor arrangements where receivables change hands. In each case, the VAT position of the bad debt relief entitlement deserves attention, typically before the assignment completes. Though, in principle, there may be a bad debt relief opportunity if there is a reassignment of the debt to the original supplier, assuming the normal conditions are satisfied.

Businesses involved in debt assignments, or advising on them, should take specific VAT advice on the bad debt relief position.