Understanding VAT/Sales Tax in the NEOSYS finance module

Understanding VAT/Sales Tax in NEOSYS Finance Module

VAT and/or Sales tax is handled in NEOSYS Finance Module by an additional pair of columns on any of the Journals. These two columns are "Tax Code" and "Tax Amount".

On sales journals and cash receipt journals these columns represent Sales or VAT collected and payable to tax authorities. On purchase or journals or cash payment journals these columns represent VAT tax paid on purchases, which is recoverable from tax authorities.

The amounts in these additional columns are posted as an additional separate line on the vouchers and into a fixed VAT/Tax Control A/c, which is defined in the Chart of Accounts.

NEOSYS billing systems automatically create journals with the correct tax codes and amounts in these additional columns.

NEOSYS has a special VAT/Tax report that shows the total amount of tax per journal and per tax code per period. This report provides a breakdown analysis of the VAT/Tax A/c movements and also can be checked versus the VAT/Tax summary, which is printed at the bottom of all the journal audit reports. There is therefore a three level verifiable control over the tax transactions and reports, which cannot be broken by operator error.

Configuring NEOSYS to handle VAT/Sales Tax

Creating "VAT Input", "VAT Output" and "VAT Tax Payments" A/cs

These should be somewhere in the Current Liabilities section of the chart of accounts.

You must create THREE a/cs, one for the VAT Tax Control INPUT, which will represent the tax paid on purchases which are recoverable from tax authorities, one for VAT Tax Control OUTPUT, which will represent the tax collected and payable to the authorities, and one for the VAT Tax Payments which will represent the payments made to the authorities YTD.

NEOSYS billing systems will automatically post all tax into the VAT Tax Control A/cs. Manual journals will not be allowed so that the Tax column on journals can be verified against the VAT Tax Control A/cs.

All payments to the Tax authorities should be debited to the VAT Tax Payments A/c. Therefore the net of the three a/cs is the current tax liability.

Make sure that the "Closing A/c Code" of the VAT input and VAT output accounts is the VAT Tax Payments A/c (here VATP). Therefore, every year, the opening balance for the VAT Input and VAT Output A/cs will be zero and the VAT Tax Payments A/c will be the net tax payable from the prior year.

Defining the Tax Codes

This is to be done in Finance > Files > Tax Rate File and is applicable to all companies.

VAT on sales (output) MUST be separated from VAT on purchases (input) using a blank line as shown below, so that the VAT statement report correctly identifies "VAT collected on outputs" and "VAT on inputs"

Making tax columns appear on the Journals

In Journal Setup make sure the tax columns are suitably titled for the relevant journals.

NOTE: On sales journals and cash receipt journals, these columns represent Sales or VAT collected and payable to tax authorities. On purchase or journals or cash payment journals, these columns represent VAT tax paid on purchases which are recoverable from tax authorities.

Check the columns now exist on the relevant journal(s).

Accounting entries

Invoice/Credit notes Journal

  Client A/C              Dr.  + 126
  Income A/c              Cr.  - 120
  VAT Control A/C         Cr.  - 6

  Cost A/C                Dr.  + 100
  Accrual A/C             Cr.  - 100 (Schedule/Job A/C)

Purchase Invoice/Media Purchase Invoice Journal

  Cost A/C                Cr.  - 100
  Accrual A/C             Dr.  + 100 (Schedule/Job A/C)
            
  Cost A/C                Dr.  + 100
  VAT Control A/C         Dr.  + 5
  Supplier A/c            Cr.  - 105

Receipt Journal

  Bank A/C                Dr. + 126
  Client A/C              Cr.  - 126

Payment Journal

  Bank A/C                Cr. - 105
  Supplier A/c            Dr.  + 105

Payment Journal

  VAT Payable A/c         Dr. + 1
  Bank A/c                Cr. - 1