On the invoice basis you account for output VAT when you issue the invoice and claim input VAT when you receive one, regardless of whether money has moved. On the payments basis you account for VAT only when payment is actually made or received. The invoice basis is the default for most vendors. The payments basis is available in limited circumstances, subject to a turnover limit and SARS approval, and it is not simply a choice you make.
The practical consequence is blunt: on the invoice basis you can owe SARS VAT on an invoice your customer has not paid, and may never pay.
What is the actual difference?
| Invoice basis | Payments basis | |
|---|---|---|
| Output VAT on sales | When you issue the invoice | When you receive payment |
| Input VAT on purchases | When you receive the invoice | When you pay the supplier |
| Who is on it | Most vendors, by default | Limited categories, subject to a turnover limit and SARS approval |
| Cash flow effect | You can pay VAT before being paid | VAT follows the money |
| Record keeping | Simpler — driven by invoice dates | Harder — every payment must be matched to an invoice |
Check your VAT registration documentation to see which basis applies to you. Most vendors assume they are on the payments basis because it feels intuitive, and are actually on the invoice basis.
Why does this hurt on the invoice basis?
Because output VAT falls due on the tax period in which you invoiced, not the period in which you were paid.
A worked example. You invoice R230,000 including VAT in March, on 60-day terms.
| Invoice issued | March |
| Output VAT included | R30,000 |
| VAT return for that period | Due in April |
| VAT payable to SARS | R30,000 |
| Customer actually pays | Late May, if you are fortunate |
You have paid R30,000 to SARS on money you did not have. On a business invoicing steadily on long terms, that gap is permanent working capital — you are always funding the VAT on roughly two months of sales.
And if the customer never pays at all, you have paid over VAT on a sale that produced nothing.
What happens when a customer never pays?
There is relief, and it is one of the most commonly missed adjustments in South African VAT.
Where a debt has become irrecoverable, a vendor who accounted for output tax on the supply may generally claim a deduction for the VAT portion of the bad debt.
Three practical points.
You must actually write it off. A debt you are still chasing, still hoping for, and still carrying in debtors is not irrecoverable. The write-off has to be real and evidenced in your records.
Keep the evidence. What you did to recover it, when you concluded it was not coming, and the accounting entry.
If they later pay, you account for the VAT again. The relief reverses.
This is genuinely money left on the table. A business with a few thousand rand of bad debts a year that has never made this adjustment has simply given SARS the VAT on sales it never received.
Who can use the payments basis?
It is not open to everyone, and it is not simply an election you make.
In broad terms it is available to limited categories of vendor, including certain natural persons and specified bodies, and it is subject to a turnover limit — a vendor whose taxable supplies exceed the limit cannot use it, and one who grows past the limit has to move to the invoice basis.
Approval from SARS is required, and a change of basis has consequences: when you move from the payments basis to the invoice basis there is a catch-up adjustment, because amounts not yet accounted for come into charge.
Confirm your eligibility and the current limit with SARS or your practitioner rather than assuming. The rules here are specific and the amounts involved are material.
What if I am stuck on the invoice basis?
Most vendors are, and the answer is operational rather than technical.
Get paid faster. This is the whole solution. Deposits, shorter terms, invoicing on the day the work is done rather than at month end, and actually following up. See how to get customers to pay you on time.
Time your invoicing deliberately. An invoice issued on the first day of a new tax period rather than the last day of the current one buys you a full period before the VAT falls due. This is legitimate, it is simply about when the work is actually invoiced — but do not manipulate dates. Invoicing must reflect when the supply occurred.
Choose the right tax period. Vendors fall into categories with different filing frequencies. Where you have a choice, the frequency affects how long you hold the VAT before paying it over. See when are VAT returns due.
Budget the VAT as though it is not yours. Because it is not. A separate account for VAT collected is unglamorous and it prevents the single most common VAT disaster — spending the VAT and being unable to pay it at the end of the period.
Claim your input VAT properly and on time. Every valid tax invoice you fail to capture is VAT you paid and did not recover. See what input VAT you can claim and what makes a valid tax invoice.
Claim your bad debt relief. As above.
Does this change how I read my numbers?
Yes, and it is worth understanding once.
On the invoice basis, your VAT position follows your invoicing, not your bank account. A month with heavy invoicing and no collections produces a large VAT liability and no cash to pay it.
Which means your VAT liability is a leading indicator of a cash problem, not a lagging one. A rising VAT bill with flat collections is telling you something about your debtors.
Two habits help:
Reconcile VAT monthly, even on a bi-monthly cycle, so you always know what is owed rather than discovering it at filing.
Watch your debtors alongside your VAT. See why your bank balance is not your profit and how to build a 13-week cash flow forecast.
Frequently asked questions
What is the difference between the VAT invoice basis and the payments basis? On the invoice basis you account for output VAT when you issue an invoice and claim input VAT when you receive one, regardless of payment. On the payments basis, VAT follows the money — accounted for when payment is made or received.
Which basis am I on? Most vendors are on the invoice basis by default. Check your VAT registration documentation rather than assuming — many vendors believe they are on the payments basis because it feels more intuitive.
Do I have to pay VAT on an invoice my customer has not paid? On the invoice basis, yes. Output VAT falls due in the tax period in which you invoiced, not the period in which you were paid.
Can I claim back VAT on a bad debt? Generally yes, where the debt has become irrecoverable and you actually write it off. It is one of the most commonly missed VAT adjustments. If the customer later pays, the relief reverses.
Who qualifies for the payments basis? Limited categories of vendor, subject to a turnover limit and SARS approval. It is not an election open to every business, and a vendor who grows past the limit has to move to the invoice basis.
What happens when I move from the payments basis to the invoice basis? There is a catch-up adjustment, because amounts not previously accounted for come into charge. Take advice before making the change.
How do I manage the cash flow impact of the invoice basis? Get paid faster, invoice deliberately with regard to tax periods, choose an appropriate filing frequency where you have a choice, hold VAT collected in a separate account, and claim input VAT and bad debt relief properly.
Should I keep VAT in a separate bank account? It is not required, and it prevents the most common VAT disaster — spending money that was never yours and being unable to pay it over at the end of the period.
The VAT is not your money, even when it is in your account
The businesses that get into trouble with VAT are rarely the ones that misunderstood the rules. They are the ones on the invoice basis who spent the VAT while waiting for a customer to pay, and then had to find it anyway.
Smartbook reconciles VAT monthly for South African vendors, captures every input claim, tracks bad debt relief that most businesses never claim, and tells you what is owed before the return is due rather than after.
See monthly accounting plans →
Last reviewed: 28 August 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Eligibility for the payments basis, turnover limits and bad debt relief conditions are specific and change from time to time — confirm your position with SARS or your practitioner before acting. General guidance, not advice on your circumstances.
Primary sources: SARS — Value-Added Tax · Value-Added Tax Act 89 of 1991 · SARS — VAT 404 Guide for Vendors