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Must you pay output tax on bad debt you recover?

by , 15 May 2014
Do you know when to account for output tax on bad debts you recover? If not, you're not alone. We get dozens of questions on the accountingandtaxclub.co.za about this. So today, instead of taking you through the when, what and how of output tax, I'm going to show you how 'Paul' got it right.

Let's have a look.

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Two easy steps to determine whether or not to charge Vat for a supply or service
 
One of the most common issues that confuses people is whether or not to charge Vat for a supply or service you render to another person or business. Use this failsafe rule to solve your question in two EASY steps!
 
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Are bad debts recovered subject to output tax?
 
Here's what Paul asked 'Prior to registering with SARS as a Vat vendor, we wrote off some customers as bad debt. Now that we're Vat registered, the bad debt is being recovered; is this subject to output Vat?'
 
Here's what our Vat expert had to say. 
 
'If you make a taxable supply and properly account for output tax, and the consideration for the supply becomes irrecoverable, you can claim an input tax deduction equal to the tax fraction (14/114) of the irrecoverable amount. (Section 22(1) read with 16(3) refers of the Vat Act).
 
If you get a deduction on your input tax, and you then recover all or some of the amount, you must account for output tax on the amount recovered (Section 22(2) and (1) of the Vat Act).'
 
But what happens if you weren't registered for Vat when you wrote off the debt?
 
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Input tax 101 e-Report
 
Tips, tools and practical advice to claim every input tax credit available to you and get the maximum from the Vat system.
 
 
 
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What happens if you weren't registered for Vat when you wrote off the debt 
 
If you weren't registered as a vendor at the time of writing off the bad debt, you won't have levied Vat on the supply made to the customers, nor would you have claimed any input tax deduction at the time of writing of the debt (Section 22(1) of the Vat Act).
 
You won't have to account for output tax on the debt now recovered (Section 22(2) of the Vat Act)).
 
Easy right. If you have any questions about output tax, input tax or Vat in general simply ask our experts your question on the accountingandtaxclub.co.za 
 
Until next time
 
Natalie Cousens
Managing Editor: Practical Vat Loose Leaf
 
PS. For practical tips and examples of when you won't have to account for output tax get your copy of the Practical Vat Loose Leaf today. It contains everything you need to know. 
 

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