Claiming back VAT on a debt that will not be paid
When a South African VAT vendor can claim back the VAT on an irrecoverable debt, where it goes on the VAT201, and what happens if the customer pays later.
By Achekam · · 5 min read · For Running a business businesses in South Africa
A customer buys on account, you issue a tax invoice, and the VAT on it goes onto your next VAT return. You pay that VAT to SARS. Months pass, the customer stops answering, and eventually the business closes. You never see the money, but SARS has the VAT you charged on it.
For a vendor on the invoice basis, that is not where the story has to end. South African VAT allows the VAT on a debt that has become irrecoverable to be claimed back, under conditions. This article explains when the relief applies, where it goes on the return, what happens if a written-off customer pays after all, and how to keep the evidence that supports the claim.
Why the basis you are registered on matters
On the invoice basis, a vendor accounts for VAT on its invoices whether or not the customer has paid yet, so VAT can reach SARS long before the money reaches you. That is the situation bad-debt relief exists for.
The other basis is the payments basis. SARS's VAT 404 guide says it is only available to vendors who are natural persons, or partnerships of natural persons, whose taxable supplies stay below a set limit over 12 months, and to certain public authorities, municipalities and associations not for gain. A vendor must apply to SARS in writing before using it. The guide quoted is issue 15, up to date at 17 December 2024, which predates the April 2026 threshold changes, so confirm the current limit with SARS. How that basis works is covered in the VAT payments basis.
Bad-debt relief as described below is for vendors on the invoice basis.
The conditions for claiming the VAT back
SARS's VAT 404 guide says a vendor on the invoice basis may deduct input tax on debts that have become irrecoverable, provided the supply was already accounted for in a VAT return.
Two conditions sit inside that sentence:
- The debt must have become irrecoverable. Not merely overdue, not disputed, not "slow". The vendor must be able to show it will not be paid.
- The VAT must already have gone to SARS. If the sale was never included in a return, there is no VAT to claim back.
The relief takes the form of a deduction on the return, which means the VAT you paid on the unpaid sale comes back to you through a later return.
Field 17 on the VAT201
SARS's guide to completing the VAT201 return identifies where the claim goes. It says the bad debts field, field 17, applies only to vendors registered on the invoice basis, and covers only VAT on irrecoverable debts on which VAT was charged at the time of sale.
That last phrase rules out a common error. If part of the debt is for something on which no VAT was charged, such as an exempt supply, only the VAT-bearing part belongs in field 17.
SARS's VAT 404 guide for vendors explains the invoice and payments bases, bad debts and the records a vendor must keep.
When a written-off customer pays after all
It happens. A liquidator pays a dividend, a customer resurfaces, a debt collector recovers part of the amount. The VAT 404 guide is clear on what follows: a vendor that has claimed the relief must account for output tax again if the debt is later paid.
Partial recoveries raise their own questions about how much VAT is due again and in which return; check them against SARS's guide. Either way, keep the write-off and the recovery linked in your records, so whoever prepares the return can see both.
Ageing, write-off and approval in Achekam
Achekam helps with the first condition, showing that the debt has really become irrecoverable, by keeping the history in one place.
Ageing. Receivables are aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals. An invoice sliding into the oldest bucket is the prompt to decide whether it is still collectable.
Write-off with approval. An unpaid debt can be written off once a partner in the workspace approves. That approval step is useful evidence in itself: it shows that someone with authority looked at the debt and decided it would not be recovered.
Write-off versus credit note. A credit note is issued from the invoice it corrects, in full or for chosen lines, posted to the ledger, and can be downloaded as a PDF or e-mailed, with leftover credit held for the customer. Use a credit note when the invoice itself was wrong or the price was reduced. Use a write-off when the invoice was right but the customer will not pay. The two mean different things for VAT, so choose the one that matches what happened.
Voiding. An administrator can void an issued invoice that has no payments or credits, which reverses its journal. That is for an invoice issued in error, not for a bad debt: voiding pretends the sale never happened.
Check how the write-off has posted in your books before you prepare the return, so that the VAT is claimed once, through field 17, and not twice or not at all. A law firm's version of this decision is discussed in writing off irrecoverable fees.
Keeping proof that the debt is irrecoverable
SARS's VAT 404 guide says a vendor must keep documentary proof for input tax and other deductions, and records of transactions, for at least five years. A bad-debt claim is a deduction, so the proof has to exist and be kept.
A useful file for each written-off debt holds:
- the original tax invoice;
- the ageing history and the statements and reminders sent;
- correspondence, including any letter of demand;
- evidence of the customer's position, such as a liquidation or sequestration notice;
- the approved write-off in Achekam, with the date and approver;
- the VAT return in which the field 17 claim was made.
Before you write off the next debt
Confirm that you are on the invoice basis, that the sale was included in an earlier return, and that the debt is genuinely irrecoverable. Approve the write-off, claim the VAT in field 17 on the next return, and keep the file. Then, if the customer ever pays, you will know exactly which VAT has to go back.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
