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Do you know how to claim VAT on bad debts? Find out here

by , 23 March 2016
If you're registered for VAT on an invoice basis, and you've already paid VAT over to SARS for an invoice that's now irrevocable, your cash flow could be severely hampered, leaving you feeling out-of-pocket twice over.

But that doesn't have to be the case at all, because our VAT system has taken this possibility into consideration.

Here's how you can claim back VAT on debts written off...


Do you know how to handle the Vat in these situations?

·         How to treat Vat you paid on bad debts;

·         Correctly charging Vat on the sale of a going concern; and

·         Vat and real estate/buildings/levies/transfer costs etc.

The ordinary Vat rules don't apply!
Here's what you need to know…

In order to claim an input tax deduction here, you need to make sure that you've physically written off the debt in your accounting records, after which you must have either abandoned the debt or passed it on to a lawyer or debt collector.

Remember, you can't write off a debt which you're still chasing after, or which the debtor is still paying off.

What's positive here is that where a debt is written off as 'irrevocable', and you've already accounted for the relevant output VAT, you can claim back the output VAT for that bad debt (which hasn't been recovered) as input VAT within the VAT period the debt was written off.


Invoice amount:                R20 000
Amount paid:                    R8 600
Debt written off:               R11 400

Input tax claim:                                11 400 x 14/114 = R1 400

Reminder: When you calculate the input tax on bad debts, you can only do your calculation based on the original invoice amount that the customer never honoured. In other words, you can't calculate the VAT on any interest which you might have charged on the debt.

Also, any bad debt you claim as a deduction for income tax purposes doesn't include the VAT you've claimed as an input tax adjustment.
Tip: You should write off bad debts, which you can't recover, at least once a year. This usually takes place at the end of the financial year.

*So there's how you can claim VAT on debts written off. But now that you've successfully done that, what now?

To find out, page over to Chapter B 02: Bad Debts, in your Practical VAT Loose Leaf Service handbook, or click here to order your copy of
this invaluable VAT resource today. 

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