A debt becomes irrecoverable when it is established that it will never be collected — not when you decide to stop chasing it. The difference from a doubtful customer is the difference between certain and probable, and it is proved by a document from outside the business. Without that document, the loss stays an accounting one and is added back for tax.
The essentials in five points
- Doubtful is probable; irrecoverable is certain. Writing off requires an established certainty.
- The proof comes from outside: the courts, a bailiff, a liquidation. An internal decision never suffices.
- The loss covers the amount excluding VAT, like the provision that preceded it.
- Any earlier provision is released in the same year, otherwise the charge is counted twice.
- Without acceptable evidence the deduction is refused, even where the debt is genuinely lost.
1. What proves irrecoverability
The tax authority is not satisfied by a record of failure. It expects a document issued by a third party, establishing that collection is definitively compromised.
| Situation | Document expected | Acceptable? |
|---|---|---|
| Liquidation closed | Judgment closing for insufficiency of assets | Yes |
| Action pursued without result | A bailiff’s certificate of no assets | Yes |
| Debtor disappeared | Bailiff’s record, official returned post | Generally yes |
| Settlement agreement | Signed protocol and formalised waiver | Depending on circumstances |
| Customer who stopped replying | None | No, that is doubtful, not lost |
| Debt that is simply very old | None | No, age proves nothing |
The last two lines account for most tax adjustments on this subject. A customer’s silence and a debt’s age are grounds for a provision, never proof of a definitive loss.
2. Write off the loss and release the provision
Two entries belong together and must be posted in the same year. Splitting them makes the result bear the same loss twice over.
- Recognise the loss for the amount excluding VAT, under debts become irrecoverable.
- Release the provision previously created on that same receivable.
- Clear the doubtful or disputed customers account for the receivable concerned.
- Attach the supporting document to the year’s file, not just to the journal.
- Check that the receivable no longer appears in the customer balance afterwards.
If the actual loss differs from the provision, the difference is recognised naturally: an insufficient provision leaves an additional charge, an excessive one releases income. No retroactive restatement is needed.
3. What happens to VAT, depending on your regime
This is where shortcuts cost money, because the answer depends on the regime you file under rather than on the loss itself.
- Cash-received regime: VAT never became due, since nothing was collected. You never paid it, so there is nothing to recover: the loss is limited to the amount excluding VAT.
- Debits regime: VAT was declared and paid at invoicing. How it is treated on a definitive loss follows a separate route, to be worked through with your accountant on the evidence.
- In both cases: The charge written off covers the amount excluding VAT. VAT is not dealt with through a write-off entry, but through its own filing route.
- What not to do: Writing the receivable off at its VAT-inclusive amount hoping to recover the VAT along the way. That shortcut mixes two logics and is spotted immediately.
The right question is not “can I recover the VAT” but “was the VAT ever due”. Under the cash-received regime, which is the common case for small businesses, the answer is no, and the question disappears.
An internal decision proves nothing
Writing “debt abandoned” in a report, stopping the reminders, or deleting the customer from your records does not make a debt irrecoverable for tax purposes. The loss must rest on something external and verifiable. This is the most frequent ground for adjustment on this subject, and it is entirely avoidable: the document is obtained during the procedure and is very hard to reconstruct two years later.
4. Securing the tax deduction
A genuine loss badly documented is a non-deductible loss. The evidence work happens during collection, not at the closing date.
- Keep the full history of reminders, with dates and the channel used.
- Start proceedings while the debtor still exists legally.
- Always ask the bailiff or the court registry for the written document.
- Date the loss to the year the evidence is obtained, neither before nor after.
- Tie the loss back to the earlier provision to show the file’s continuity.
For small receivables the trade-off is economic: proceedings can cost more than the tax saved. Accepting a non-deductible loss is sometimes the rational decision, provided you take it deliberately rather than end up with it by default.
Mistakes to avoid
- Writing a debt off on its age alone.
- Forgetting to release the provision created earlier.
- Recording the loss at the VAT-inclusive amount.
- Keeping no document issued by a third party.
- Dating the loss to a year before the evidence was obtained.
- Starting proceedings after the debtor has legally ceased to exist.
Frequently asked questions
When does a debt become irrecoverable?
When an external document establishes that collection is definitively compromised: a liquidation closed for insufficiency of assets, a bailiff’s certificate of no assets, a record of the debtor’s disappearance. Certainty is the condition.
Is legal action always required?
Not in every case, but proof from a third party is. A certificate of no assets or a closing judgment are the strongest documents. An internal assessment is never enough on its own.
Can VAT be recovered on a lost debt?
The question does not arise the same way under each regime. Under the cash-received regime VAT never became due and there is nothing to recover. Under the debits regime it was paid, and the treatment follows a filing route to be worked through with your accountant.
What happens to the provision already created?
It is released in the year the loss is recognised. The release and the loss offset each other, which neutralises the effect on the result up to the amount already provisioned.
What if the customer eventually pays after the write-off?
The receipt is income of the year in which it occurs. You do not reopen the closed year; the recovery is simply recorded as exceptional income.
What to take away
A write-off is prepared during collection, not at the close. Obtain the third-party document while the procedure is still live, write the loss off on the amount excluding VAT, release the provision in the same year, and leave VAT to its own logic. That is the only way to make a real loss a deductible one as well.
Sources
The figures and rules quoted above come from these pages, read on the date given in the article.
- Ministry of Economy and Finance, General Code of Accounting Standardisation, read 1 September 2026
- Moroccan Tax Administration, 2026 General Tax Code
A customer history that stands up to inspection
BelloPOS keeps sales, payments and customer credit tracking from Go onward: the history that documents a collections file before it turns into a loss.
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