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Documentation > MAC-PAC Reference Library > Reference > Common Features > Key Concepts and Procedures > 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:

 

 

 

Gross
Amount

Discount
Allowed Flag

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.

 

 

 

Original
Amounts

Open
Amounts

 

 

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:

 

 

 

Gross Amount


VAT Rate


VAT Code


% Recoverable

 

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

 

 

 

Gross
Amount


VAT Rate


VAT Code

 

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:

 

 

 

Gross
Amount

Discount
Allowed Flag

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.)