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VAT Processing >
How VAT is Calculated
How VAT is Calculated
The following steps describe how VAT is calculated for a "typical" sales order. Notes are provided in parentheses to explain where the processing is different for items entered in Accounts Payable and General Ledger. This example illustrates basic VAT processing. Following the description are numerous examples that show the detail of how VAT is calculated and posted in several special circumstances.
1. As you enter the sales order in Order Processing, you assign a VAT code to each line. A default value will be assigned by MAC-PAC, based on the hierarchy described in another section of this key concept. You can override this default as necessary.
2. The lines associated with each VAT code are added to give a total sales amount for each VAT code. The amount used for each line is either the gross amount of the amount less any cash discount, depending on the VAT option selected and on whether a discount is allowed. ( Discount processing is not implemented in GL; VAT is calculated on the total for each VAT code rather than on individual sales order lines to avoid rounding errors.) Items such as freight, other expenses, and duty may be subject to VAT. VAT will be calculated for these items if a VAT code is defined on the Warehouse Balance File for the corresponding part.
(These fields are not considered taxable or deductible within Accounts Payable and General Ledger. To be included in tax processing, these amounts must be entered as regular distribution lines.)
3. The totals for each category are multiplied by the appropriate VAT rate, which is retrieved from Reference File category 308. (The VAT rate is retrieved from category 230 in Accounts Payable and category 114 in General Ledger.)
4. A separate line for each VAT code is printed on the invoice. It contains the following information:
· Total of the taxable amounts from all lines related to this VAT code
· VAT rate
· VAT amount
You cannot override these system-calculated amounts within Order Processing or General Ledger. (You may override calculated amounts in Accounts Payable.)
5. MAC-PAC stores the VAT total on the VAT History File. This record also includes the VAT amount subject to discount, the cumulative VAT declared amount, and VAT adjustments.
6. The amount of this sale is added to the year-to-date sales for the customer on the Customer Master File. In an environment where VAT is suspended, the total sales amount for all invoice lines subject to suspension is added to the year-to-date suspension sales amount stored on the Customer Master File. (Within Accounts Payable, the year-to-date suspension amount is stored on Reference File category 229.)
VAT Surcharge Calculations
In general, the VAT Surcharge amount will be processed similarly in all affected programs, even though each program displays the VAT Surcharge amount in a different way.
All VAT Surcharge calculations will be generally processed as follows:
When calculating VAT, the Bill-to Customer Master record will be accessed to determine if the customer will be charged a VAT Surcharge. If the VAT Surcharge flag is ‘N’, VAT will be calculated as it currently is done for normal VAT processing.
If the flag is ‘Y’, then the program will retrieve Reference File category 308 using the current VAT code. If a VAT Surcharge code is associated with the current VAT code, then the VAT Surcharge code is retrieved to determine the correct VAT Surcharge rate and the VAT Surcharge amount will be calculated using the same base amount as the VAT calculation. The VAT Account assignment record will also be accessed to retrieve the account number to apply to the surcharge amount.
Example 1:
VAT is calculated at gross, and the declaration point is at the time of invoice (AP).
1. Invoice calculations:
Gross purchase amount
|
|
200
|
VAT (10%)
|
|
20
|
Total gross amount
|
|
220
|
|
|
|
Discount (5% of 200)
|
|
10
|
Total net amount
|
|
210
|
2. Accounting entry when vendor invoice is received:
Purchases
|
|
200
|
|
VAT Declarable
|
|
20
|
|
Accounts Payable
|
|
|
220
|
3. Accounting entry if payment is made for the gross amount:
Accounts Payable
|
|
220
|
|
Cash
|
|
|
220
|
4. Accounting entry if payment is made for the net amount without recalculating VAT:
Accounts Payable
|
|
220
|
|
Cash
|
|
|
210
|
Discounts Gained
|
|
|
10
|
5. Accounting entry if payment is made for the net amount and VAT is recalculated to take discount:
Accounts Payable
|
|
220.00
|
|
|
Cash
|
|
|
210.00
|
|
VAT Declarable
|
|
|
.91
|
= (VAT * discount) = (20*10)
total subject to discount 220
|
Discount Gained
|
|
|
9.09
|
|
Example 2:
VAT is calculated at net, and the declaration point is at the time of payment (AP).
1. Invoice calculations:
Gross purchase amount
|
|
200
|
Discount (5%)
|
|
10
|
Total gross amount
|
|
190
|
|
|
|
VAT (10%)
|
|
19
|
Total net amount
|
|
209
|
2. Accounting entry when vendor invoice is received:
Purchases
|
|
200
|
|
VAT Intermediate
|
|
19
|
|
Accounts Payable
|
|
|
209
|
Discounts Gained
|
|
|
10
|
3. Accounting entry if payment is made for the gross amount:
Accounts Payable
|
|
209
|
|
VAT Declarable
|
|
19
|
|
Discounts Lost
|
|
10
|
|
Cash
|
|
|
219
|
VAT Intermediate
|
|
|
19
|
4. Accounting entry if payment is made for the net amount without recalculating VAT:
Accounts Payable
|
|
209
|
|
VAT Declarable
|
|
19
|
|
Cash
|
|
|
209
|
VAT Intermediate
|
|
|
19
|
Example 3:
VAT is calculated at gross and recalculated at the time of payment, and the declaration point is at payment time (AP).
In this example, not all items are subject to discount and a partial payment is made to take advantage of the discount.
1. Invoice calculations:
|
|
|
|
Amount Subject to
Discount
|
|
Item A.1
|
50.00
|
Y
|
50.00
|
|
Item A.2
|
150.00
|
N
|
0.00
|
|
Total Purchases
|
200.00
|
|
|
|
VAT code V1 (10%)
|
20.00
|
|
5.00
|
|
|
|
|
|
|
Item B
|
100.00
|
Y
|
100.00
|
|
VAT code V2 (15%)
|
15.00
|
|
15.00
|
|
|
|
|
|
|
Item C
|
300.00
|
N
|
0.00
|
|
VAT code V3 (20%)
|
60.00
|
|
0.00
|
|
|
|
|
|
|
Invoice Total
|
695.00
|
|
170.00
|
|
Discount (5% of 170)
|
8.50
|
|
|
|
Total Net Amount
|
686.50
|
|
|
2. Accounting entry when invoiced:
|
Purchases
|
|
600
|
|
|
VAT V1 Intermediate
|
|
20
|
|
|
VAT V2 Intermediate
|
|
15
|
|
|
VAT V3 Intermediate
|
|
60
|
|
|
Accounts Payable
|
|
|
695
|
3. Accounting entry when partial payment 1 is made, taking discount into account:
Payment 1: 400 (user-entered)
Discount : 6 (user-entered)
The amount of the payment to be posted to each VAT account is based on the percentage of the total accounts payable amount that is represented by the VAT code. The formula is: payment amount (406) times invoice amount for VAT code divided by total amount of invoice (without discount) (695).
|
VAT V1 Declarable
|
|
11.68
|
|
= 406*(20/695)
|
|
VAT V2 Declarable
|
|
8.76
|
|
= 406*(15/695)
|
|
VAT V3 Declarable
|
|
35.05
|
|
= 420*(60/695)
|
|
VAT V1 Intermediate
|
|
|
11.68
|
|
|
VAT V2 Intermediate
|
|
|
8.76
|
|
|
VAT V3 Intermediate
|
|
|
35.05
|
|
Where:
20, 15, and 60 are the total VAT by VAT rate.
420 is the total payment value.
695 is the total invoice amount.
The discount (6) is also pro-rated based on what percentage of the total amount subject to discount (170) is represented by each VAT code..
|
Accounts Payable
|
|
406.00
|
|
|
|
Cash
|
|
|
400.00
|
|
|
VAT V1 Declarable
|
|
|
.18
|
= 6*(5/170)
|
|
VAT V2 Declarable
|
|
|
.53
|
= 6*(15/170)
|
|
Discounts Gained
|
|
|
5.29
|
|
Where:
5 and 15 equal the total VAT subject to discount, by VAT rate.
6 is the total discount taken.
170 is the total invoice amount subject to discount.
|
|
|
|
|
|
Gross
|
695.00
|
289.00
|
|
|
Discount
|
8.50
|
2.50
|
Discount taken = 6
|
|
Net
|
686.50
|
286.50
|
= Invoice - payment - discount taken
= 695 - 400-6
|
4. Accounting entry when payment 2 is made.
Payment 2: 286.50 (user-entered)
Discount: 2.50 (user-entered)
|
VAT V1 Declarable
|
|
8.32
|
|
|
= 289.00*(20/695)
|
|
VAT V2 Declarable
|
|
6.24
|
|
|
= 289.00*(15/695)
|
|
VAT V3 Declarable
|
|
24.95
|
|
|
= 289.00*(60/695)
|
|
VAT V1 Intermediate
|
|
|
8.32
|
|
|
|
VAT V2 Intermediate
|
|
|
6.24
|
|
|
|
VAT V3 Intermediate
|
|
|
24.95
|
|
|
Where:
20, 15, and 60 are total VAT by VAT rate.
289.00 is the total payment value.
695 is the total invoice amount.
If any intermediate VAT balance is left after the final payment (due to rounding), it is reversed out against the declarable VAT.
|
Accounts Payable
|
|
289.00
|
|
|
|
Cash
|
|
|
286.50
|
|
|
VAT V1 Declarable
|
|
|
0.07
|
= 2.5*(5/170)
|
|
VAT V2 Declarable
|
|
|
0.22
|
= 2.5*(15/170)
|
|
Discounts Gained
|
|
|
2.21
|
= Total discount taken less VAT discounts
|
Where:
5 and 15 are total VAT subject to discount , by VAT rate
5 is the total discount taken.
170 is the total invoice amount subject to discount.
Example 4:
Only part of the VAT paid on a vendor invoice is recoverable from the taxing authorities.
1. Vendor Invoice Calculations:
|
|
|
|
|
|
|
Item A
|
50
|
10%
|
R1 (recoverable)
|
80%
|
|
Item B
|
100
|
20%
|
R2 (recoverable)
|
10%
|
|
Item C
|
200
|
30%
|
R3 (not recoverable)
|
0%
|
|
Total Sales
|
350
|
|
|
|
|
|
|
|
|
|
|
VAT R1
|
5
|
|
|
|
|
VAT R2
|
20
|
|
|
|
|
VAT R3
|
60
|
|
|
|
|
Total Due
|
435
|
|
|
|
|
|
|
|
|
|
2. Accounting entry:
|
Purchases
|
|
350
|
|
|
|
VAT Receivable (R1)
|
|
4
|
|
= (5 * 80%)
|
|
VAT Receivable (R2)
|
|
2
|
|
= (20 * 10%)
|
|
VAT Not Recoverable (N1)
|
|
79
|
|
= (1+18+60)
|
|
Accounts Payable
|
|
|
435
|
|
Note:
· No system-generated posting is made for VAT code R3, since 0% is recoverable.
· The non-recoverable portion of VAT paid will be posted to a user-defined account. You must enter this amount as a separate line when you enter the invoice. The VAT code assigned to that line must be a code you have already set up on Reference File category 230 with type N (for not-recoverable).
Example 5:
VAT is Included in Sales Price of Item on Customer Sales Order
1. Sales Order Calculations
|
|
|
|
|
|
Item A
|
220
|
10%
|
V1
|
|
Item B
|
180
|
20%
|
V2
|
|
Total Sales, VAT included
|
400
|
|
|
2. Accounting entry:
|
Accounts Receivable
|
|
400
|
|
|
|
|
VAT Receivable (V1)
|
|
20
|
|
|
= 220 - (220/(100% + 10%))
|
|
VAT Receivable (V2)
|
|
30
|
|
|
= 180 - (180/(100% + 20%))
|
|
Sales
|
|
|
350
|
|
= 400 - 20 - 30
|
Example 6:
In Order Processing, VAT is calculated at gross, and the declaration point is at the time of invoice.
1. Sales order calculations:
|
Gross order amount
|
|
200
|
|
VAT (10%)
|
|
20
|
|
Total gross amount
|
|
220
|
|
|
|
|
|
Discount (5% of 200)
|
|
10
|
|
Total net amount
|
|
210
|
2. Accounting entry when invoiced:
|
Sales
|
|
|
200
|
|
VAT Declarable
|
|
|
20
|
|
Accounts Receivable
|
|
220
|
|
3. Accounting entry if payment is received for the gross amount:
|
Accounts Receivable
|
|
|
220
|
|
Cash
|
|
220
|
|
4. Accounting entry if payment is made for the net amount without recalculating VAT:
|
Accounts Receivable
|
|
|
220
|
|
Cash
|
|
210
|
|
|
Discounts Taken
|
|
10
|
|
5. Accounting entry if payment is made for the net amount and VAT is recalculated to take discount:
|
Accounts Receivable
|
|
|
220.00
|
|
|
Cash
|
|
210.00
|
|
|
|
VAT Declarable
|
|
.91
|
|
(VAT * discount) = (20*10)
total subject to discount 220
|
|
Discount Taken
|
|
9.09
|
|
|
Example 7:
In Order Processing, VAT is calculated at gross and recalculated at the time of payment, and the declaration point is at payment time.
In this example, not all items are subject to discount and a partial payment is made to take advantage of the discount.
1. Sales order calculations:
|
|
|
|
Amount Subject to
Discount
|
|
|
Item 1
|
50.00
|
Y
|
50.00
|
|
|
Item 2
|
150.00
|
N
|
0.00
|
|
|
Total Sales
|
200.00
|
|
|
|
|
VAT (10%)
|
20.00
|
|
5.00
|
= .10 * 50.00
|
|
Sales Order Total
|
220.00
|
|
55.00
|
|
|
Discount (10% of 55)
|
5.50
|
|
|
|
|
Total Net Amount
|
214.50
|
|
|
|
2. Accounting entry when invoice is created:
|
Sales
|
|
|
200
|
|
VAT Intermediate
|
|
|
20
|
|
Accounts Receivable
|
|
220
|
|
3. Accounting entry when full payment is received, taking discount into account:
Payment 1: 214.50 (user-entered)
Discount : 5.50
|
Accounts Receivable
|
|
|
220.00
|
|
|
Cash
|
|
214.50
|
|
|
|
VAT Intermediate
|
|
.50
|
|
= total VAT subject to discount * discount taken
total amount available for discount
= (5*5.50)/55
|
|
Discounts
|
|
5.00
|
|
= (50*5.50)/55
|
|
VAT Declarable
|
|
|
19.50
|
= total VAT * payment value - VAT adjustment
total sales order amount
= (20*220)/220 - .50
|
|
|
VAT Intermediate
|
|
19.50
|
|
|
|
Example 8:
In Accounts Payable, VAT is postponed. Declaration point is Invoice.
1. Vendor Invoice Calculations:
|
|
Gross Amount
|
VAT Rate
|
VAT Code
|
% Recoverable
|
|
Item A
|
50
|
10%
|
P1 (postponed/ partially recoverable)
|
80%
|
|
Item B
|
100
|
20%
|
P2 (postponed/ fully recoverable)
|
|
|
Item C
|
200
|
30%
|
P3 (postponed/ not recoverable)
|
|
|
Total Sales
|
350
|
|
|
|
|
Total Due
|
350
|
|
|
|
|
|
|
|
|
|
|
VAT P1
|
5
|
|
|
|
|
VAT P2
|
20
|
|
|
|
|
VAT P3
|
60
|
|
|
|
|
|
|
|
|
|
Note: The VAT rate for P3 is given as 30%. This information is provided so you can follow the calculations. However, within MAC-PAC, you will need to define this percentage as 0% and enter the VAT due (30% of 200) manually. For P2, the VAT is fully recoverable. However, when you define the VAT code on category 230, you will need to leave the percent recoverable at its default value of 0%. The P1, P2, and P3 VAT codes would be defined as follows on Reference File category 230:
VAT Code
|
VAT Rate
|
% Recoverable
|
P1
|
10%
|
80%
|
P2
|
20%
|
0%
|
P3
|
0%
|
0%
|
2. Accounting entry:
Purchases
|
|
350
|
|
|
VAT Declarable (P1)
|
|
4
|
|
= (5 * 80%)
|
VAT Declarable (P2)
|
|
20
|
|
= (20 * 100%)
|
Non-recoverable VAT Expense
|
|
61
|
|
= 60 + (5 * 20%)
|
Accounts Payable
|
|
|
350
|
|
VAT Postponed (P1)
|
|
|
5
|
|
VAT Postponed (P2)
|
|
|
20
|
|
VAT Postponed (P3)
|
|
|
60
|
|
Note:
· The payable portion of the postponed VAT will be paid directly to the government, not to the vendor. Consequently, the VAT amounts are not added to the accounts payable total.
· The non-recoverable VAT must be entered as a separate line when you enter the invoice. (Similar to Example 4.)