Writing Off Accounts Payable: When Income Arises

Limitation period: the starting point

The general limitation period is three years (Article 150 of the Civil Code). It is the period within which the supplier can protect its right through the courts (Article 149). The parties cannot change it by agreement (Article 152).

• for obligations with a fixed performance date, the period starts when that date has passed (Article 154) — for example, from the day after the payment date under the contract;
• if the payment date is not fixed or is set by demand, the period runs from when the creditor became entitled to demand performance;
• the law may set special periods for certain claims — shorter or longer than the general one (Article 151);
• a court applies the limitation period only at the request of a party to the dispute (Article 153) — so expiry gives grounds for a write-off in the books but does not “erase” the debt automatically.

What interrupts the period — and restarts the clock

The most common mistake is counting three years from the delivery date without looking at later correspondence. The period is interrupted by filing a claim and by actions of the obligor that show it acknowledges the debt; after the interruption the period starts afresh (Article 157).

• a signed reconciliation statement, a partial payment or a letter asking for deferral usually count as acknowledgement;
• the period is suspended, in particular, by force majeure, a moratorium, or a mediation agreement (Article 156);
• so before writing off, build a timeline for each creditor: performance date, latest reconciliations, payments, claims;
• if you pay the debt after the period has expired, you cannot reclaim the money (Article 161).

How to document the write-off

• carry out a stocktake of settlements and identify debts with an expired limitation period;
• issue an order of the head of the company listing the creditors, amounts, dates incurred and why the period has expired;
• under the NAS No. 21 Chart of Accounts: writing off current payables to suppliers with an expired limitation period — Dr 6010 Cr 9360 “Income from writing off creditor and deponent payables”;
• for long-term payables to suppliers the Chart of Accounts instructions give the entry Dr 7010 Cr 9390;
• unclaimed deposited amounts and other time-barred payables are likewise written off to account 9360;
• keep the documents — contract, acts, reconciliations, the order: they will support the date and amount of income at a tax audit.

Profit tax: a written-off debt is income

Article 297(3)(12) of the Tax Code of the Republic of Uzbekistan expressly includes in total income the income from writing off an obligation in the manner established by law. There is one exception: writing off expenses that were not previously deducted under Article 317 is not income.

• the logic: a company received a service, deducted its cost, but did not pay; three years later the debt is written off — the amount returns to the tax base as income;
• if the expense behind the debt did not reduce the tax base at the time (it was non-deductible under Article 317), its write-off is not income;
• income is recognised in the period the obligation is written off; given the three-year limitation period for tax obligations (Article 88), delaying the write-off creates a risk of additional assessment for a specific year.

Turnover tax and other regimes

For turnover tax payers the taxable object is total income determined under Chapter 43 of the Tax Code, excluding the income listed in Article 304 (Article 463). Income from writing off an obligation is part of Chapter 43 (Article 297), so written-off payables also increase the turnover tax base.

• advances received but never worked off are payables too; while the advance stays on the books it is not income (Article 304(6)), and on write-off it becomes income from writing off an obligation;
• in the VAT section of the Tax Code we found no specific rule on adjustment when payables are written off — each case involving previously credited VAT should be assessed separately.

The creditor on the other side: a bad debt

For the supplier the same debt is a receivable. The Tax Code treats as bad debt one that cannot be repaid, including because the limitation period has expired. How the creditor deducts bad debts is a topic for a separate article on receivables; what matters here is that the write-off on one side does not depend on the other party’s actions.