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How to claim input tax on bad debts...

by , 31 August 2016
How to claim input tax on bad debts...If you're registered for VAT on the invoice basis, as most vendors are, you have to pay output tax over to SARS according to the invoices you have issued, during a specific tax period. You have to do this, whether your client has paid that invoice or not.

But what happens if your client doesn't pay the invoice and the debt becomes bad? Remember, you have already paid that VAT to SARS. Is there a reclaim allowed to you?

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Can you really afford not to be 100% sure about every input tax claim you submit?

Most VAT vendors make one of two big mistakes when claiming their input tax.
They either:
  1. Don't know about certain input tax deductions which SARS allows, and then lose out on important cash flow savings for the business; or
  2. Claim when they shouldn't and face SARS penalties and assessments!
Don't make the same mistake. Here's how to be 100% sure about all your input tax claims


Is there a reclaim allowed to you? 

Well, yes!  Section 22(1) of the VAT Act says that if you make a taxable supply and submit a return and pay the VAT over, and an amount becomes irrecoverable, you can make an input tax deduction of the VAT on the amount that became irrecoverable.

The Law doesn't say you should have made an attempt to collect the debt.  It just says if the debt is irrecoverable. So if its company policy to recognise an unpaid invoice as bad within 32 days, then it follows that on day 33 the debt is bad, and you can claim the corresponding input tax amount in the relevant VAT return.

So what's the problem?

The problem is that if you claim input tax for bad debts (in block 17 of the VAT return), SARS is threatening to disallow our deductions, unless you can prove you handed the debt over for collection. Or some other type of legal follow up has taken place to prove you tried to collect the debt. 

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Get back 25% of the bad debts you've incurred in the last year, thanks to this SARS tax allowance

Small businesses are going to great lengths to chase up outstanding amounts from clients and customers. Some debts will be impossible to recover, unfortunately that means your cash flow could suffer.

But there's good news. You could claim a doubtful debt allowance, by deducting 25% of the debts....

Read on to find out more!


This is an illegal action on the part of SARS!

And the reason it's illegal is because Section 22(1) of the VAT Act doesn't say, you must be able to prove the debt has been handed over for collection.

The Law just says if an amount becomes irrecoverable, and you've already paid over the VAT, you claim the input tax
Remember this the next time you make an input tax claim for bad debts, and the SARS auditors ask for proof of collection attempts. Refer them to Section 22(1) of the Act. 

P.S. Need VAT training? Join Dee Bezuidenhout for an intensive 2-day VAT training programme, covering VAT from every angle. From basics, right up to the more complex VAT rules. Learn new solutions to your VAT challenges. Gain an in depth understanding on the latest VAT rules and regulations and know what SARS expects from you. Book your seat here 

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