{"id":109,"date":"2018-09-10T14:15:35","date_gmt":"2018-09-10T13:15:35","guid":{"rendered":"http:\/\/sagefinancialsknowhow.com\/?p=109"},"modified":"2018-09-11T14:31:41","modified_gmt":"2018-09-11T13:31:41","slug":"how-tax-is-handled-in-sage-financials","status":"publish","type":"post","link":"https:\/\/sagefinancialsknowhow.com\/how-tax-is-handled-in-sage-financials\/","title":{"rendered":"How Tax is handled in Sage Financials"},"content":{"rendered":"

\"How<\/p>\n

Tax handling in Sage Financials has been designed for the global market – so it can be configured to work in any country in the world. And a single Sage Financials instance can use multi-legislation for different companies based in different countries. This flexibility means there is a degree of complexity you might not find in other accounting systems.<\/p>\n

This article will explain how Tax is defined in Sage Financials, how you can configure these settings as\u00a0‘defaults’. It will be followed by another article on Tax Breakdown, VAT handling and how to choose the correct Tax Treatment.<\/p>\n

Three Tax Objects:<\/h3>\n

This diagram summarises how the three Tax Objects link together with the Legislation.
\n<\/p>\n

Top of the pile is Legislation. In a multi-company environment the Legislation is dictated by the current company, otherwise its just your primary Legislation. The Legislation determines which Tax Treatments and Tax Codes are available to use. The actual Tax Rate used comes by combining Tax Treatment and Tax Code.
\nFor example:<\/em><\/p>\n\n\n\n\n\n\n\n\n\n\n\n
Tax Treatment<\/td>\nTax Code<\/td>\nTax Rate<\/td>\n<\/tr>\n
UK Sale Goods<\/td>\nStandard Rate UK<\/td>\n20%<\/td>\n<\/tr>\n
<\/td>\nReduced Rate UK<\/td>\n5%<\/td>\n<\/tr>\n
<\/td>\nExempt UK<\/td>\n0%<\/td>\n<\/tr>\n
<\/td>\nZero Rate UK<\/td>\n0%<\/td>\n<\/tr>\n
EC Sale Goods UK<\/td>\nStandard Rate UK<\/td>\n0%<\/td>\n<\/tr>\n
<\/td>\nReduced Rate UK<\/td>\n0%<\/td>\n<\/tr>\n
<\/td>\nExempt UK<\/td>\n0%<\/td>\n<\/tr>\n
<\/td>\nZero Rate UK<\/td>\n0%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

The importance of UIDs<\/h3>\n

Although the objects are linked as Lookup fields, Sage Financials uses the UIDs to work out the Tax Rate to apply. The UID for Tax Rate MUST be made up from [Legislation UID].[Tax Treatement UID].[Tax Code UID].[Identifier]
\nFor example:<\/em>
\nLegislation UID:\u00a0GB<\/em>
\nTax Treatment UID:\u00a0Output_GB<\/em>
\nTax Code UID:\u00a0StandardGB<\/em>
\nTax Rate UID:\u00a0GB.Output_GB.StandardGB.VAT<\/em><\/p>\n

Alpha Index have a tool to auto-generate the Tax Rate UID and validate existing UID’s.<\/p>\n

Tax Rate Dimension<\/h3>\n

In addition to the objects described above, there is a Tax Rate Dimension. The Tax Rate Dimension Tag can be linked to the Tax Rate object, but in many cases it is not. What Sage Financials uses is the Name of the Dimension Tag which must match the UID of the Tax Rate.
\n<\/p>\n

The Tax Rate Dimension Tag has a Ledger Account defined which is used\u00a0by the Posting Rules to determine where to post the Tax Amount (eg to \u20192201 Purchase Tax Control Account\u2019). The Posting Rules use ‘[TaxRate]’ which picks up the appropriate\u00a0Tax Rate Dimension Tag from the Tax Treatment & Tax Code, rather than an actual Dimension Tag linked to the transaction.\u00a0The Tax Rate Dimension Tag also has a Tag Ledger Account \u2018LedgerAccount\u2019 but this is not currently used in the UK posting rules.<\/p>\n

Entering Invoices and how ‘defaults’ work<\/h3>\n

 <\/p>\n

Entering an Invoice<\/em><\/h4>\n

In a multi-company environment you first select the Company you are working on. This will determine the Legislation, which will limit the Tax Treatment you can use in the transaction\u00a0Header:<\/em><\/p>\n