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VAT on recoveries in the Credit Industry

The FCM held a VAT Workshop on 23 May 2018 at the Indaba Hotel. The Workshop facilitator was Christo Theron (founder of TradeTax). The workshop was attended by some 45 delegates ranging from Regulators, Credit Providers, Debt Recovery Agents, Attorneys and VAT specialists. The Presentation can viewed here >

The main points identified during the workshop:

1. There is a clear distinction between the mandate given buy a Credit Provider to a Debt Collector versus the engaging the services that of an Attorney.

The charges between a Debt Collector and a Consumer (annex B of the Debt Collectors Act) falls within the estate of the Debt Collector and may not be charged back to the Credit Provider. The Credit Provider is not liable for the fees and expenses incurred by the Debt Collector, those fees and expenses are for the risk of the Debt Collector.

In the event that a Credit Provider engages the services of an Attorney, the Attorney represents the Credit Provider and the Credit Provider is responsible for the Fees and expenses of the Attorney. The fees and charges of the Attorney is billed back to his/her instructing Credit Provider.

2. The Fees and Expenses.

The fees and expenses, charged by the Debt Collector and the Attorney, both attract VAT - the difference being that the Debt Collector would charge the VAT to the Consumer and the Attorney would charge it to his/her instructing Credit Provider.

CAVEAT The delegates concluded that the fees and expenses that the Debt Collector charges to the Consumer might not have to attract VAT for two possible reasons:

1. There is no value added service rendered to the Consumer.

2. The other pillar of the debate is that the Debt Collectors Act might create a contract of insurance to the Debt Collector and then the fees and expenses would not attract VAT.

Both these debates will be further investigated by the Debt Collectors Council and ADRA (Association of Debt Recovery Agents). Until finality is reach the Debt Collector would err to be cautious and charge VAT on the fees and expenses and pay over such VAT to SARS.

CAVEAT The delegates debated the VAT trigger and came to the conclusion that no invoice is rendered by the Debt Collector prior to the receipt of the payment of the fees and expenses by the Consumer. Hence the only conclusion that can be reached is that the VAT trigger would be the actual date of payment of the fees and expenses. VAT will be charged and paid over to SARS at the aforementioned trigger.

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