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Reclaiming VAT on Bad Debts

How to get the VAT back if a customer does not pay you and you have already paid VAT on the sales? It must be remembered that a registered person accounts for VAT on the basis of time of supply which, for the normal case, is the earliest of:

  1. date of issue of invoice;
  2. date of payment; or
  3. date that goods were made available or services performed.

If a person grants supplies on credit the VAT is still due on these supplies. The VAT liability is not affected by non collection of payment for the supplies made during the tax period.

The Act makes provision for relief to be granted where the tax was paid on a supply that has proven to be uncollectible.

A registered person may be allowed to claim for bad debt relief if he satisfies the following criteria:

  1. he must have already accounted for VAT on the supply in respect of which the amount is outstanding;
  2. all or part of the consideration must be outstanding despite reasonable efforts have been made to collect it;
  3. the amount must have been written off in his books as a bad debt.

An input tax deduction is allowed for tax paid in respect of a taxable supply made by the registered person where the whole or part of the consideration for the supply is subsequently treated as a bad debt.

However, this deduction shall be allowed only if the taxable supply is made to a person other than a registered person or the taxable supply is made to a registered person and the person claiming the deduction under that subsection issued a tax credit note to the registered purchaser listing the amount claimed under the following formula referred to in VAT Act section 41 subsection (12), being subjected to subsection (9):

A x B/C

where:
A is the amount allowed as a deduction
B is the amount of the bad debt recovered; and
C is the amount of the bad debt previously written off

The formula states that where any amount in respect of which a deduction is allowed at any time wholly or partly recovered by the registered person, the registered person shall be treated as having charged tax in respect of a taxable supply made during the tax period in which the bad debt is wholly or partly recovered, being an amount of tax calculated according to the above mentioned formula.

The amount of the deduction allowed is the amount of the tax paid in respect of the taxable supply which corresponds to the amount of the debt treated as bad.

The deduction arises on the date on which the bad debt was written off in the accounts of the registered person, and if the registered person satisfies the Comptroller that reasonable efforts have been made to recover the amounts due and payable.

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The Tax Reform Unit (St. Kitts)
Inland Revenue Department
3rd Floor E.C. Daniel Building
Cayon Street
Basseterre
St. Kitts

Tel: (869) 467-1931
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

 

The Tax Reform Unit (Nevis)
Inland Revenue Department
Main Street
Charlestown
Nevis

Tel: (869) 469-5521 ext. 2221
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