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Here are the Vat implications when you finally manage to recover a bad debt

by , 22 August 2014
If a debtor owes you money and other income has accrued to you (e.g. interest charged on the overdue account), but he doesn't pay the debt and you have little or no chance of recovering the outstanding balance, it's called a 'bad debt'.

The good news is, you can claim an input tax deduction from SARS on the amount of bad debt you write off.

But what happens when you finally manage to recover a bad debt? What are the Vat implications?
Read on to find out the answers so you can comply with Vat law and account for Vat correctly.


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Before we get to the Vat implications, let's take a look at the conditions you must meet to deduct bad debts


In this article, our experts explain that you can only deduct bad debts if:

Condition #1: Money is due to you;

Condition #2: The outstanding amount was originally included in your taxable income in any previous year of assessment; and

Condition #3: You've concluded there's little or no possibility of recovering the outstanding balance or the debtor has either been sequestrated or liquidated during that specific year of assessment.

If you meet these conditions, you can deduct bad debts. You first have to write off the bad debt before you claim the input tax deduction.

Now let's look at the Vat implications when you manage to recover the bad debt you've written off.

These are the Vat implications when you finally manage to recover a bad debt

Let's say, you wrote off a debt as bad and claimed an input tax deduction on the debt written off, but then you manage to get payment from your debtor. What happens now in terms of Vat?

In this case, you'll have to declare and pay output tax to SARS on the amount you recover. You must include this in the Vat return for the Vat period in which you recover the amount.

It's that simple.

Now that you know the Vat implications when you manage to recover a bad debt, comply with Vat law and account for Vat correctly.

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