VAT Configuration Process
This document outlines the process of configuring VAT (Value Added Tax) options within your system. It covers the automatic calculation of input VAT, settings for non-deductible VAT, and reverse charge options. The steps will guide you through defining tax categories and how to manage VAT entries manually or automatically, ensuring accurate financial records.
Step 1
We are introducing a new feature to extend the functionality of purchase orders by enabling the automatic calculation of input VAT. A new column has been added to the tax category settings where you can define if the VAT is deductible, non-deductible, or involves a reverse charge.
Step 2
The reverse charge VAT feature will be explained in a subsequent video. In this session, we will focus on configuring the non-deductible VAT. In our example, we have defined a tax category named Petrol.
Step 3
The Petrol tax category is used for automobile fuel, and in our business case, we are not entitled to VAT deductions. In our product and services list, we have an item called ‘Unleaded Petrol’ assigned to the ‘Petrol’ tax category, indicating it has no VAT deduction rights. Additionally, we will add an item named ‘Energy for Electric Car’, belonging to the ‘Electric Car Charging’ tax category, which is deductible.
Step 4
In this version, it is now possible to combine items with or without VAT deduction rights within a single invoice. For instance, we will enter a quantity of forty for unleaded petrol at a purchase price of twenty, and seventy-five kilowatts for electric charge. Here, the input VAT is automatically calculated, and the deductible VAT is shown as zero for the unleaded petrol item, indicating no deduction rights.
Step 5
The supplier has calculated the VAT, but we do not have the right to deduct it. Special provisions are calculated for VAT and deductible VAT, which is reduced by this amount since we are not entitled to a sixteen-dollar deduction of the previous VAT.
Step 6
You can decide where the non-deductible amount will be recorded and how it will be calculated. Options include treating it as inventory cost, cost of services, increasing the stock amount as landed cost, or recording it in a separate tax account as a tax expense, depending on your accounting policy.
Step 7
If you prefer to calculate VAT manually, you can select the manual option to enter VAT amounts, setting VAT at twenty and non-deductible VAT at zero if needed. Manual entry is recommended only if discrepancies arise due to rounding or specific tax items.
Step 8
Switching to automatic calculation is recommended. If manual calculation is used, deductible VAT must be manually filled in. By selecting automatic, the system will define it as such.
Step 9
Define the tax location, such as mechanical import or domestic trade, to determine the VAT calculation process. When the document is recorded, it will show that the landing cost is allocated to the stock amount, like the unleaded petrol in this instance.
Step 10
This concludes the basic setup. For other items, like solar home gas or battery packs, the process is similar. Different tax rates can be defined, and the system will automatically adjust the input and deductible VAT based on the purchase price.
Step 11
The values will be automatically set, and input VAT and deductible VAT will be adjusted. If exceptions arise, manual entry is available for correction. Automatic recalculations will handle reduced rates, ensuring no mistakes in VAT calculations.
Step 12
We reiterate that calculations follow the applicable tax rate logic, requiring careful attention. The deductible VAT panel is a new feature, and if manually configured, it must be accurately recorded. For inventory costs, set it as a manual entry and observe changes in the stock amount.
Step 13
This concludes the process.
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