Value Added Tax

Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.

VAT return is a form you file to show how much VAT you are due to pay to government. If you’re not registered for VAT, you won’t file VAT returns.

To enable the VAT Return in the application, go to Settings»Accounting»Financial Reports and tick the VAT Return Report and save the changes.

After that you will be able to create VAT from the Tax rates and use it in your invoices.

Make sure that Flat Rate Return is not selected in your Tax Settings under Financial Settings, otherwise the VAT Return will not show balances.

After the VAT tax is created, it can be used in transactions like Sales Invoice and Purchase Invoice.

When Tax Inclusive is chosen, the system takes your total price of 22,000 and then calculates what the rate would need to be to reach the total of 22,000 when a 5% tax is applied. Here is the formula:

  • tax excluded price  = total item price / ((tax rate /100) + 1)
  • inclusive tax amount = tax excluded price * tax rate

By setting up No Tax, the system considers there is no tax at all in the transaction and the Tax column becomes disabled.

The VAT can be tracked using the VAT Return available from the Accounts Reports.

Once you save the VAT Return it will be copied to the VAT Report.

 

See also