VAT Corrections for Write-Off, Deduction, and Chargeback Transactions (AR)

When a customer open item must be written off as uncollectable, there are two options for how to handle the related VAT amounts:

·     Generate a correction posting to the VAT accounts to reverse the VAT entry for the open item.  The reversal will be generated if the flag on the AR VAT Defaults category (Reference File category 307) is set to yes.  You will also have the option to adjust VAT for a write-off at the reason code level through Reference File category 350.  The VAT Adjustment flag can either by ‘Y’ or ‘N’ if the Automatic Creation flag is ‘N’ for the write-off reason code.

·     Do not reverse the previous VAT entry.  The reversal will not be generated if the flag on category 307 is set to no.

When the reversal flag on category 307 is set to yes, VAT will be corrected for both total write-offs and write-offs of small underpayments.

VAT corrections are handled similarly for deductions and chargebacks.  If an open item is not created for a deduction or chargeback, then VAT must be recalculated.  On Reference File category 350, if the VAT Adjustment Flag is set to ‘Y’ and the Automatic Creation flag is ‘N’, then VAT will be corrected for the reason code.  Reference File category 307 will be used for write-off payments and discounts and for determining whether or not the correction is allowed for the company/location.  If it is allowed and VAT is to be corrected for the reason code, then a VAT adjustment will be performed in the case of deductions, chargebacks, and partial write-offs.