Mr. Rogers is registered for VAT on an invoice basis
, and he has great difficulty managing his past-due debtors and so cedes them with a book value of R100 000.
He does so to ABC Bank, which pays R80 000 for the debtors.
Read on to see more…
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The R80 000 will therefore be part of the consideration for the exempt supply.
When Mr. Rogers completes his VAT return for the tax period in which he ceded his list of debtors, he declares the R80 000 as an exempt supply in his VAT return. The R20 000 is considered a discounting factor which is also an exempt supply for VAT purposes.
What's the pitfall?
If you're registered for VAT on a payments basis,
then the cession or sale of your book debts is NOT an exempt supply, and so you'll have to account for VAT at the 14% rate for the cession or sale of any book debts.