Required settings #

VAT functionality can be enabled in the General settings, along with the default VAT rate. The default rate can be changed in the Sales documents.

Enter your company’s tax registration number in the Company info.

VAT accounts #

As with any other account, the default VAT accounts are specified in the Accounting settings. However, there are five different accounts to set:

• VAT calculation
• VAT on purchase of goods and services
• VAT on sales
• VAT on prepayments paid out
• VAT on prepayments received

AccountingSuite strongly recommends isolating the VAT on prepayments accounts from the Incoming/Outgoing VAT accounts for the following reasons:

• By isolating VAT on prepayments in a separate account, businesses can ensure that their VAT calculations are precise. This separation helps in tracking the VAT associated with prepayments distinctly from other transactions.
• When it comes time to reconcile VAT returns, having a dedicated account for prepayments simplifies the process. It allows for easier identification of amounts that need to be reported or reclaimed.
• Maintaining separate accounts for VAT on prepayments can facilitate compliance with tax regulations. In the event of an audit, having distinct records makes it easier to demonstrate accurate reporting and adherence to tax laws.
• By clearly delineating VAT on prepayments, businesses reduce the risk of errors that could lead to underreporting or overreporting of VAT, thus minimizing potential penalties from tax authorities.

AccountingSuite offers the following different options to account for VAT:

Option 1 #

Sales: separate accounts for primarily accounting for VAT (VAT on purchase of goods and services, VAT on prepayments paid out) and for VAT Calculation.

Purchases: separate accounts for primarily accounting for VAT (VAT on sales, VAT on prepayments received) and for VAT Calculation.

The balance of the VAT calculation account is therefore relevant on any day during the tax period and no additional action is required as part of the tax period close. VAT is not deductible until a supporting document is received from the supplier, minimising the risk of over-deductible VAT.

Purchase with a prepayment:
Prepayment paid out → Tax invoice received → VAT Calculation
Bill → VAT on purchases of goods and services → Tax invoice received → VAT Calculation
Apply vendor credit → -VAT Calculation

Purchase with no prepayment:
Bill → VAT on purchases of goods and services → Tax invoice received → VAT Calculation

Sales with prepayment received:
Prepayment received→ Tax invoice issued → VAT Calculation
Sales invoice → VAT on sales → Tax invoice issued → VAT Calculation
Apply customer credit → -VAT Calculation

Purchase with no prepayment received:
Sales invoice → VAT on sales → Tax invoice issued → VAT Calculation

Option 2 #

Sales: one common account for primarily accounting for VAT (VAT on purchase of goods and services, VAT on prepayments paid out) and for VAT Calculation.

Purchases: one common account for primarily accounting for VAT (VAT on sales, VAT on prepayments received) and for VAT Calculation.

All VAT entries are made directly to the VAT calculation account (VAT calculation). Tax accounting documents (tax invoice issued/received, tax credit note, tax debit note) do not make any entries as the debit and credit are the same (Dt VAT calculation, Ct VAT calculation) and are only created for the purpose of generating print forms. VAT on advances received/issued is not taken into account.

The disadvantages of this option can be considered as the risk of overstating the deductible VAT, since the debit balance on the VAT calculation account (VAT calculation) can be created even in the absence of supporting tax accounting documents (tax invoice received and tax debit note), as well as the lack of correct accounting of VAT on advances paid/received.

Sales:

Sales invoice → VAT Calculation

Purchase:

Bill → VAT Calculation

Option 3 #

Sales: separate accounts for primarily accounting for VAT (VAT on purchase of goods and services, VAT on prepayments paid out) and for VAT Calculation (as in Option 1).

Purchases: one common account for primarily accounting for VAT (VAT on sales, VAT on prepayments received) and for VAT Calculation (as in Option 2).

Assuming that the issuance of the document confirming the outgoing VAT (tax invoice issued or tax credit note) can be fully controlled by the company, the sales documents charge the VAT directly to the VAT calculation account, bypassing the VAT on sales account and the VAT on prepayments received accounts.

Tax invoice issued #

Create Tax invoice issued for sales invoice #

1. Open the respective Sales invoice
2. Once the Sales invoice is posted, the Generate Tax Invoice Issued panel below becomes active.
3. Click Generate Tax Invoice Issued
4. Generated invoice is accessible via Sales invoice

Create Tax invoice issued for prepayment received #

1. Open the respective Sales order.
2. Click Generate – Prepayment received.
3. Specify the amount received and the applicable VAT rate.
4. Once the Prepayment is posted, the Generate Tax Invoice Issued panel below becomes active.
5. Click Generate Tax Invoice Issued (prepayment).
6. Tax invoice will open, showing the VAT and the total amount.
7. Under Dr Cr button you will find the respective postings. Please note, that the account effected by tax invoice are set in the VAT accounts.
8. Save the Tax invoice.
9. Generated invoice is accessible via Sales order

Accounting #

Recording a Tax invoice issued creates the following transactions in the General Journal:

• Debits: Outgoing VAT account (from the Accounting settings)
• Credits: VAT calculation account (from the Accounting settings)

Note: If the accounts set in the Accounting settings for Outgoing VAT and VAT calculation are the same, no posting will be made, as Dr equals Cr.

Print forms for Tax invoice issued and Tax Credit Note #

1. Open the respective Tax invoice or Tax credit note
2. Click Print – Tax invoice (or Credit note for Tax Credit note)
3. Print form will open. You can Print, Save or E-mail the Tax invoice.
4. To edit the print from according to your business needs please refer to a video tutorial.

Tax invoice received #

Create Tax invoice received #

1. Open the respective Bill
2. Once the Bill is posted, the Generate Tax Invoice Received panel below becomes active.
3. Click Generate Tax Invoice Received
4. Generated invoice is accessible via Bill

Create Tax invoice received for paid prepayment #

1. Open the respective Purchase order.
2. Click Generate – Prepayment.
3. Specify the amount paid and the applicable VAT rate.
4. Once the Prepayment is posted, the Generate Tax Invoice received panel below becomes active.
5. Click Generate Tax Invoice received (prepayment).
6. Tax invoice will open, showing the VAT and the total amount.
7. Under Dr Cr button you will find the respective postings. Please note, that the account effected by tax invoice are set in the VAT accounts.
8. Save the Tax invoice.
9. Generated invoice is accessible via Purchase order.

Accounting #

Recording a Tax invoice received creates the following transactions in the General Journal:

• Debits: VAT calculation account (from the Accounting settings)
• Credits: Incoming VAT account (from the Accounting settings)

Note: If the accounts set in the Accounting settings for Incoming VAT and VAT calculation are the same, no posting will be made, as Dr equals Cr.

Tax credit note #

Create Tax credit note #

1. Open the respective Customer credit memo
2. Once the Customer credit memo is posted, the Generate Tax Credit note panel below becomes active.
3. Click Generate Tax Credit note.
4. Generated Tax Credit note is accessible via Customer credit memo or under Sales – Tax invoices issued and Tax Credit notes.

Tax debit note #

Create Tax debit note #

1. Open the respective Vendor credit memo
2. Once the Vendor credit memo is posted, the Generate Tax Debit note panel below becomes active.
3. Click Generate Tax Debit note.
4. Generated Tax Debit note is accessible via Vendor credit memo or under Purchases – Tax invoices received and Tax Debit notes.

Reverse charge VAT #

If any transactions are subject to reverse charge VAT, please use the Journal entry for postings.

Tax invoice print forms #

Open Tax invoice print form #

1. Open the respective Tax invoice issued (or the respective Tax credit note)
2. Click Print – Tax invoice (or Print – Credit note)

VAT return #

Please refer to the VAT return article of the knowledge base.

Comprehensive example of VAT document flow #

The tables below show the accounting postings for all documents in the particular document flow, including the VAT-related postings.