If you're a Vat vendor and aren't sure of what happens next when you pay over Vat on sales to your debtors, but some of those debts become irrecoverable, the Practical Vat Loose Leaf Service has got you covered.
Here's what you must do when you've paid Vat and a debt becomes irrecoverable
Here's an example of how you'd do this: Let's say you sell a suit to Mr Yuppie for R2 280 and declareR280 (R2 280 X 14/114) as output tax in month one.
In month three, he pays R570 of the invoice and in month six you hear he's left the country.
In that month, you can claim R1 710 X 14/114 = R210 (the Vat portion of the bad debt) as input tax and the rest (the other R1 500) as an income tax bad debt.
What proof does SARS require for a bad debt?
According to the Practical Vat Loose Leaf Service, to date, SARS hasn't laid down any hard and fast rules!
But general practice requires that you must at least be able to show you attempted to recover the debt. SARS will also want you to show the tax period where you actually first paid the Vat over.
What happens when you have claimed the input tax and then recover the debt?
You pay the Vat back, as output tax, by filling in block 12 on your Vat return for the period you recovered the money.
Well there you have it. Your claiming rights when you've paid Vat and a debt goes bad.