How to deal with paying Vat when your customer has extended payment terms?
Here's the question:
My business income has come down dramatically due to payment terms on a new customer. My company was registered for Vat on the 'Invoice Basis'. The problem I have now is due to the extended terms on my new customer. I haven't yet received the money which I now have to pay Vat on. What can I do, so I don't have this financial stress on me due to a low cash flow?
Keep in mind that if you're a sole trader or in a partnership, with a turnover of less than R2.5 million in a year, you can register for Vat on the payments basis. This means you can account for your Vat (and claim for it) as per actual payments received and made.
However, note that the payments basis is only for:
• Individuals and partnerships with turnovers of less than R2.5 million a year;
• Water boards; and/or
• Associations not for gain.
The invoice basis is for everyone else. And yes, everyone else suffers with cash flow to pay the Vat.
All I can suggest is that you attempt to issue your invoice only when you get the payment from the client.
There's good news too – in the 2015/2016 budget, SARS announced it's considering extending the payment basis to companies and trusts, and increasing the R2.5 million limit.
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Getting your VAT refund from SARS just got harder…
A small administrative mistake is all it takes for SARS to have the right to withhold your refund.
Put a simple zero in the wrong place on the new VAT return could and you can forget about getting even a cent of your money back.
Make sure this never happens to you by filling in the new VAT return 100% correctly every, single time.
I'll show you how here.
Now, let's look at the second case and see what can you do about your disapproved input tax deduction!
SARS disapproved my input tax deduction on debt I wrote off. What should I do so this doesn't happen again?
Here's the solution!
You can claim Vat on bad debts (Section 22 of the Vat Law). It just says that where you've issued a tax invoice, paid over the Vat to SARS, and the debt is irrecoverable, then you're allowed to claim the tax fraction of the debt back as input tax.
On what grounds did SARS disallow your deduction? If it's for no reason, then you can claim the Vat again in your next tax period, based on this info I've given you above. You know much better than SARS whether the debt is irrecoverable or not.
To do this, sure your letter to SARS contains these key elements to prove you've covered your bases:
1. You've written the debt off in your financial accounts;
2. You've stopped pursuing the debt, or handed it over to a lawyer or debt collector; and
3. Why you regard the debt as irrecoverable or not worth pursuing