Value-added tax on irrecoverable outstandings

As a supplier of services or commodities you are required – usually at quarterly intervals – to settle up the value-added tax you have charged on your customers’ purchases with the Tax and Customs Administration, in line with the relevant tax return. This is the rule irrespectively of whether your customers have paid you, and therefore brings with it the risk of your settling up an amount in value-added tax with the Tax and Customs Administration which you yourself have not (yet) collected owing to your customer not having paid at all, or having paid only part of its invoice. Meanwhile your customer itself can use the value-added tax charge for input tax purposes. As the duped supplier you have the option of applying for restitution of any such irrecoverable value-added tax.

N.B. : It is not permissible for tax payers themselves to set off any such irrecoverable value-added tax in the context of their tax returns.

Restitution of value-added tax: when?
You can apply for the restitution of the value-added tax as soon as it has been established that your customer is unable or unwilling to pay (the rest of) the invoice you had raised with it. The request to this effect should be filed with the Tax and Customs Administration within a one-month term of the end of the period during which you established that your customer would not be paying you, and should be accompanied by documentation in corroboration of your customer’s non-payment. Your request for restitution should at the very least include the following details:

• your customer’s name and address,
• the invoice date and number,
• the outstanding amount of the invoice,
• the value-added tax charge for which you are seeking restitution.

A copy of your original invoice enclosed with your restitution request will suffice on condition that your invoice should include all of the above details.

What to do in the event of belated payment
Your customer may belatedly see the light and settle up the amount it still owed you. Meanwhile the Tax and Customs Administration may already have upheld your restitution request. Such a scenario will involve your having to account for the relevant value-added tax amount in your (next) tax return and settle up same with the collector of taxes.

Credit note
If your customer has not paid (all of) your bill and you decide to let the matter rest, you can draw up a credit note in the amount of the difference between the amount you originally invoiced and the payment you have ended up collecting. (We would point out, however, that in doing so you will have resigned to the bad debt.) As your customer’s input tax credit entitlement will decrease as a result of your presenting it with a credit note, it will be under the obligation to include an adjustment in its tax return for the tax credit it had wrongly claimed.