Hi, I would like to know more about bad debts and income tax. We have a client who owes us money, my accountant says that if we create a Provision for Bad Debts in the balance sheet SARS will only allow us 25% as a tax deduction. There is a court case pending and this could take another year for all we know, can I write off this debt in our books or will this create a problem for the future court case? I have also asked the question to our attorney, but they can't answer me right away as they are not familiar with tax law.
Obviously we can't and don't want to pay tax on this amount. I have already paid the VAT on the invoice and would also like to claim that amount back as it is detrimental to our cash flow. Any advice please? Thank you.