VAT Type

There are seven types of VAT codes: 

·     Exonerated

·     Suspended

·     Partially Recoverable

·     Not Recoverable

·     Postponed

·      Surcharge

·     Normal

The character used to identify each of the types is specified on Reference File category 024 (VAT Type).  "Normal" processing is the default and is associated with a blank type code.

Exonerated

The customer never needs to pay VAT for items purchased with an exonerated VAT code.  The VAT total on the invoice or payment, is zero, and no VAT is posted.  However, the transaction is posted to the VAT History File for reporting purposes.  The entire total of the purchase is shown in the field for non-taxable sales amounts.  For a VAT code with this type, the tax rate is always zero.  Exonerated VAT processing is used in the Order Processing, Synchro, Accounts Receivable, and Accounts Payable modules.  In addition, it will be used for invoices created from transfer order shipments.  Note that exonerated VAT is typically used for sales to customers where the customer and sourcing company/warehouse are located in different countries within the European Community.  

Suspended

A suspended VAT type indicates that the customer does not need to pay VAT for the item until a given sales amount or a given date has been reached.  MAC-PAC stores the total of all suspended sales to date for each customer on the Customer Master File.  For purchases you make, the year-to-date suspended sales is stored on the Reference File (category 229).  If a sale would cause the maximum sales limit to be exceeded, VAT is charged on the purchase/order.  In addition, VAT is charged on all purchases/orders that occur after the suspended date.  On purchases/orders before the limit is reached, a record is posted to the VAT History File for reporting purposes, even though the VAT amount is zero.  Suspended VAT processing is used in the Order Processing, Synchro, Accounts Receivable, and Accounts Payable modules.

Note that VAT is charged on the entire amount of the order that causes the customer to exceed a sales amount limit.  For example, if the limit were £500, year-to-date suspended sales were £450, and the current sale was £75, VAT would be charged on the entire £75 purchase, rather than on £25 (the portion of the current sale that exceeded the limit). 

Also note that the sales amount limit applies to total suspended sales/purchases for all items from one customer in the year.  For example, if the limit were £500, a customer could purchase £1,000 worth of goods that were subject to non-suspended VAT without affecting the limit.  The year-to-date field on the Customer Master File contains only the total for items purchased with suspended VAT codes.

In addition, the year-to-date field contains only sales where VAT was not charged.  If VAT is charged on a sale that exceeds the suspension limit, the year-to-date field is not updated (since VAT was not suspended for the sale).  Consequently, VAT might be charged for one sale and not for the following one.  For example:

Suspension limit = £500
Year-to-Date suspended sales =  £450
Sale 1 =  £75. 

Sale 1 would cause the limit to be exceeded (450 + 75 > 500), so VAT is charged on the sale.  Since VAT is not suspended for the transaction, the year-to-date amount is not updated.  After Sale 1, the year-to-date suspended sales is still  £450.

Sale 2 =  £10. 

This sale is still below the limit (450 + 10 < 500), so VAT is suspended for the sale.  The year-to-date amount is updated.  After Sale 2, the year-to-date suspended sale =  £460.

When a sales order exceeds the suspension limit, a message appears on the order entry screen to indicate that the limit has been reached and VAT will be charged to the customer.

Data for Exonerated and Suspended VAT Types

Note that permission for VAT exoneration and VAT suspension must be granted by the taxing authority.  Permission is granted for a particular entity and is valid for specific purchases made by that entity.  Therefore, to use exonerated or suspended VAT types:

·     Within Accounts Receivable, you must define two pieces of information for each customer for which the exoneration or suspension is authorized.  This information is stored on the Customer Master File:

-     The authorization number granting fiscal exoneration/suspension.  This number defaults on the header screen for each sales order and invoice, where it can be changed.

-     The VAT code that pertains to the customer.  Whenever an order or invoice is entered for the customer, MAC-PAC will retrieve this code from the Customer Master File to determine what VAT calculation should take place.  If the VAT code specified in the field is associated with the exonerated VAT type, MAC-PAC knows that VAT is typically exonerated for the customer; if the VAT code has the suspended type, VAT is suspended for the customer.  In either case, the VAT code on the Customer Master File is used as a default for each line on the sales order and on the invoice header.  This default can be overridden if the typical processing does not apply for a particular case.

      Note that you can specify a default VAT code on the Customer Master File that is neither exonerated nor suspended.  However, this VAT code will be ignored by the Order Processing module.  For information on what VAT code will be defaulted to sales order lines if the Customer Master default is not exonerated or suspended, refer to the section in this key concept on Hierarchy for Defaulting VAT Codes on Sales Orders.  Accounts Receivable will always use the Customer Master default VAT code (no matter what VAT type is associated with the code).

      If the default VAT code is suspended, you can choose to have the code set to blanks when the suspension limit is reached.  This system-wide option is selected on Reference File category 307.  When this occurs, VAT will be processed according to the VAT code on the Sales Order Line.

·     Within Accounts Payable, you must specify the authorization number granting you VAT exoneration/suspension status.  This information is entered on Reference File category 229 (A/P VAT Defaults).  This number defaults to the invoice header screen, where it can be changed. 

For suspended VAT processing, you must also specify the sales amount or date after which VAT must be calculated.  This information is specified on the Customer Master File for Accounts Receivable and on the AP VAT Processing Defaults category (Reference File category 229) for Accounts Payable. 

A stamp duty amount will be applied to all document lines that use a VAT code with an exonerated or suspended VAT type if the following conditions are met:

·     The document is in bookkeeping currency.

·     The total document amount is greater than the limit amount set on Reference File category M01.

·     The Bill-to customer is required to be billed for the stamp duty amount.

VAT will be processed for the stamp duty part if an exonerated or suspended VAT code has been entered on the OP Stamp Duty Defaults, Reference File category M01.

Clearing Suspended Year-to-Date Amounts

The year-to-date suspended sales amount is stored on the Customer Master File, and the year-to-date suspended purchase amount is stored on category 229.  These fields are maintained by the system.  In general, you should not change the fields.  However, it is important that they be reset to zero at the end of each fiscal year:

·     At the end of the fiscal year, the Accounts Receivable data base audit program will automatically zero out each customer's year-to-date suspended total at the same time that it zeroes out the customer's other sales information.  Information about how to clear the sales totals is given in the Start of Year Processing procedure within the Accounts Receivable User Manual.

·     The system does not automatically reset the Accounts Payable year-to-date suspended total, which is stored on Reference File category 229.  You must zero out that amount manually at the end of each year.

Partially recoverable

A partially recoverable VAT type is used when only a portion of the VAT amount paid in Accounts Payable can be claimed from the tax authorities.  For each VAT code with a type of partially recoverable, you must indicate (on Reference File category 230) what percentage of the VAT will be claimed.  This VAT type can only be used with Accounts Payable (since all VAT received from customer orders must be paid to the taxing authorities).  Examples are given later in this key concept to illustrate exactly how VAT is calculated for partially recoverable VAT types.

Not recoverable

A not-recoverable VAT type is associated with VAT that you have paid to the vendor but cannot claim from the tax authorities.  The amount charged to a VAT code of this type will be the difference between the total VAT paid and the VAT recovered.  This VAT type can only be used within Accounts Payable (since all VAT received from customer orders must be paid to the taxing authority).  Non-recoverable VAT amounts must be entered manually on a separate invoice line.

Postponed

Postponed VAT is used in Accounts Payable for imports when:

·      Both vendor and receiving company/warehouse are located in countries that belong to the European Community.

·      The receiving company/warehouse is registered within the EC. 

Postponed VAT can be fully recoverable, partially recoverable, or not recoverable.  An example is given later in this key concept to illustrate how VAT is calculated and posted in each of these three situations.  In all situations, however, no VAT is paid to the vendor.

When the vendor invoice is received, the VAT is not included in the invoiced total.  Instead, each line is entered with a postponed VAT code.  Accounts Payable then generates two transactions on the VAT History File:  an "output" transaction for the VAT that is due to the government, and an "input" transaction from the VAT that will be recovered from the government.

When 100% of the VAT can be recovered from the tax authorities, the two VAT transactions cancel each other out.  When the postponed VAT is not recoverable or partially recoverable, the part that cannot be recovered is entered manually and posted to an expense account.  Note that this amount is paid directly to the government; no vendor liability is generated for the postponed VAT.

For more information, refer to the VAT Calculations for EC Members section of this key concept.

Surcharge

VAT Surcharge is only used in the Accounts Receivable module and is applied to customers that do not have to declare VAT, but who are subject to a small extra tax known as the VAT Surcharge (V.S.).  The rate of this tax will be dependent upon the VAT rate applied to the item.

The following rules apply to the VAT Surcharge tax:

·     V.S. is only applicable to national sales and can only be entered for normal VAT types

·     VAT exempt sales are also V.S. exempt

·     The taxable base for V.S. is also the same for VAT

·     The Bill-to customer will determine whether or not V.S. tax should be charged by setting a flag on the Billing Information screen in Customer Master Maintenance

In addition, customers who are affected by EDI will not be subject to V.S. because of their size.

The VAT Surcharge code will only be valid in VAT environments and must be entered on the VAT code record if you are associating V.S. to the VAT code.  The two codes are associated through Reference File category 308.  To associate a VAT Surcharge code with a VAT code, enter a valid VAT Surcharge code and leave the VAT type blank, indicating normal VAT code.  First, you will need to define the VAT Surcharge code on Reference File category 308 by setting the VAT type to VAT Surcharge and leaving the Surcharge Code blank.  VAT Surcharge account assignments will be retrieved from the VAT account, type 65 or 67, on Reference File category 302 using the VAT Surcharge tax code.

When an invoice is created for a customer who  is subject to the VAT Surcharge, it will have different distribution lines for the VAT tax and its associated VAT Surcharge tax.  If you manually create an invoice, a VAT Surcharge tax code cannot be added directly to the distribution lines.  Instead, it will be calculated if the VAT code is associated with the VAT Surcharge code on the reference file and the customer is subject to VAT surcharge.  The VAT Surcharge amount will be calculated the same way VAT is calculated.  For more information on VAT calculation, refer to the How VAT is Calculated procedure in this section of the manual.

In Sales and Quote Order Maintenance and Inquiry, the tax amounts on the Recap screen will include both the VAT amount and the VAT Surcharge amount for the order.  To get more detailed information on the total tax amounts, you can enter an action code to display the VAT Summary window.  Each VAT and VAT Surcharge code and amount will be displayed on the window.

The VAT statements must report the VAT amounts and VAT Surcharge amounts separately, due to the different VAT codes and VAT types.  However, the taxable base amounts on which surcharges have been applied should not be calculated in the final totals of taxable base amounts, since these amounts were already accumulated when normal VAT was reported.

Normal VAT Processing

Normal VAT is used in the Order Processing, Synchro, Accounts Receivable, General Ledger, Purchasing, and Accounts Payable modules.  VAT is calculated for all purchases or orders, according to the rate specified on the Reference File.  Within Accounts Payable, all of the VAT paid is recovered from the taxing authority.