To claim an input tax deduction for bad debts, you must physically write off the debt in your accounting records and abandon the debt completely. Of course, you can't write off a debt you're still chasing or if the debtor is still paying it off.
If you partially write a debt off as irrecoverable, having accounted for the relevant output tax, you can claim an input tax deduction on the debt you haven't recovered in the Vat period you write it off, says the Practical Vat Loose Leaf Service.
Here's an example to help you out:
You have an invoice for R11 400 in January 2012
You declare output tax: R11 400 X 14/114 = R1 400
Half the debt is paid by the debtor who disappears without paying the balance of R5 700
In January 2013, you write of the debt: R5 700
Your input tax claim will be: R5 700 x 14/114 = R700
Just remember that when you work out the input tax on bad debts, you can only do your calculation on the original invoice amount, or part of it that the customer didn't honour. You mustn't calculate the Vat on any interest you charge on the overdue debt. The bad debt you claim as a deduction for income tax purposes excludes the Vat you claim as an input tax adjustment.
It's that simple.
Now that you know how to claim Vat on debts you write off on the invoice basis, get it right so you won't incur penalties.