AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
If you use traditional accounting and a Nigerian client's invoice will not be paid, you can deduct it as a bad debt, or a doubtful debt to the extent you estimate it is bad, under section 35 of ITTOIA 2005, as HMRC's Business Income Manual explains. A general provision, such as a percentage of all unpaid invoices, is not allowed. On the cash basis no write-off is needed, because the unpaid fee was never counted as income.
First: which method are you on?
The answer depends on how you keep your books. GOV.UK describes the cash basis as the standard way for sole traders to record income: income counts only when received. If you are on the cash basis and a Nigerian client never pays, the fee never entered your profits, so there is nothing to deduct. HMRC's Business Income Manual says its bad and doubtful debts chapter does not apply to businesses using the cash basis.
Under traditional accounting, you recorded the income when you issued the invoice. If it then goes unpaid, you have been taxed on money you did not get, and the bad debt rules let you correct that. If you are unsure which you use, see cash basis or accruals with naira income.
The rule under traditional accounting
HMRC's BIM42701 (updated 4 August 2026) sets out the Income Tax rule in section 35 of the Income Tax (Trading and Other Income) Act 2005. A deduction for a debt owed to a trader is not allowed except for:
- a bad debt;
- a doubtful debt, to the extent it is estimated to be bad;
- a debt released by the creditor wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.
Where the debtor is bankrupt or insolvent, the manual treats the whole debt as bad except any amount reasonably expected to be received. It also says a general reserve, such as a percentage of total debts, is not allowed if made without regard to the circumstances of the particular debtors. Each debt has to be looked at on its own.
Showing a Nigerian debt is bad
HMRC's chapter includes pages on evidence, on waivers and slow payers, and on currency restrictions. A slow payer is not the same as a bad debt. What you need is a record showing why you no longer expect to be paid, debt by debt. For a Nigerian client, that might include:
- your invoice, contract and proof the work was delivered;
- dated reminders and a formal demand, and any reply or silence;
- evidence the client has stopped trading, been wound up, or cannot be traced;
- advice that recovery through a Nigerian court would cost more than the debt;
- any partial payment received, which reduces the amount you can deduct.
Before you give up, see chasing an unpaid invoice from a Nigerian client, which covers reminders, demands and the Lagos small claims route. Those steps also create the evidence you need if the debt does turn bad.
When the problem is getting money out
Sometimes a client is willing to pay but cannot obtain foreign currency, or the money is stuck. HMRC's bad debts chapter has a separate page on currency restrictions, so read it, or ask an accountant, before treating such a debt as bad. Accepting naira into an account in your name may be a practical alternative; see keeping a naira account for Nigerian clients.
Worked example
Example. Kemi uses traditional accounting with a year end of 5 April. On 10 March 2027 she invoices a Port Harcourt events firm £3,000 and records it as income for 2026-27. The client pays £1,000 in June 2027 and then stops responding. By January 2028, after a formal demand and evidence that the firm has closed its office, she concludes the rest will not be paid.
- 2026-27
- Income includes the £3,000 invoice.
- 2027-28
- £1,000 received (already counted as income). Bad debt deduction: £2,000.
- If paid later
- HMRC's BIM42730 says an amount recovered after relief is brought back into income in the year of recovery.
On the cash basis, Kemi would have recorded only the £1,000 she actually received, in 2027-28, and made no deduction at all.
If the client pays after all
BIM42730 says that if a debt you deducted is later recovered, or you recover more than its written-down value, the amount recovered or the excess is brought into credit in the year of recovery. So a late payment from Nigeria after a write-off is income in the year it arrives.
Timing the deduction
Because the rule turns on whether a debt is bad, or estimated to be bad, the sensible habit is to review unpaid Nigerian invoices at each year end, deciding debt by debt what you still expect to receive, and writing down your reasons on that date. A short note per invoice, with the steps you have taken and the client's last response, is usually enough to show HMRC the estimate was made with regard to that particular debtor, as BIM42701 requires.
If a client offers goods or services instead of money, or you agree to accept less in settlement, the manual has separate pages on assets accepted and debts released, so check those before recording the outcome.
Where Pryme fits
Pryme cannot recover a debt, but clear records help both the chase and the write-off. Invoicing from a Pryme Business Account keeps each invoice next to the payments received against it, and verifiable receipts record exactly what a client paid and when. See business multicurrency accounts.
Questions people ask
Can I claim tax relief on an invoice my Nigerian client never paid?
Under traditional accounting, yes, if the debt is bad or, for a doubtful debt, to the extent estimated to be bad. On the cash basis no relief is needed because the fee was never income.
Can I write off a percentage of all unpaid invoices?
No. HMRC's manual says a general reserve made without regard to the particular debtors is not allowed.
What evidence does HMRC want for a bad debt?
Records showing why that particular debt will not be paid, such as reminders, a formal demand, and evidence the client has ceased trading or cannot be traced.
What if the client pays after I wrote it off?
The amount recovered is brought back into income in the year you receive it, per HMRC's BIM42730.
Sources
- HMRC Business Income Manual BIM42701: bad and doubtful debts, overview (updated 4 Aug 2026) · accessed Oct 2026
- HMRC Business Income Manual BIM42700: bad and doubtful debts, contents (updated 4 Aug 2026) · accessed Oct 2026
- HMRC Business Income Manual BIM42730: debts recovered after allowance (updated 4 Aug 2026) · accessed Oct 2026
- GOV.UK: Cash basis (page updated 5 Oct 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.