Errors in Vat invoices could cost you thousands!
Are there any inaccuracies in your Vat invoices? You may be charged a very high penalty!
Revealed: Here are the Vat consequences when you cede your debts
The Practical Vat Loose Leaf Service explains that if you're registered for Vat on the invoice basis, and cede or sell your book debts, it's known as a transfer of ownership of debts.
As you know, this is a financial service and these services are an exempt supply for Vat purposes.
This means you can't claim any input Vat for the discounting cost/loss you've incurred on the discounting of the debtors.
That's not the only Vat implications of ceding your debts
Overall, the Loose Leaf Service says the Vat treatment of ceding debts depends on the basis of cession.
This means you can cede your debts on either the recourse or a non-recourse basis.
Where you've transferred debts at face value on a recourse basis, (i.e. the debt reverts to you if it becomes bad), you can only claim an input Vat amount for such bad debt as has been transferred back to you.
Where you've transferred your debts on a non-course basis, (i.e. the transferee accepts the risk for any bad debts), then the transferee can claim any debt acquired that has become irrecoverable.
This means if the buyer of your debts only collects a portion of the debt and hands the uncollected or irrecoverable portion back to you, you can claim an input tax deduction for the irrecoverable portion.
There you have it. While ceding your debts might be a solution for resolving the ongoing problem of old and stale debtors, beware of the Vat consequences.
PS: Think Vat doesn't apply to your payroll? You're wrong!
Avoid this common error and keep SARS away from your door at audit time.