{"id":248,"date":"2018-09-18T16:38:14","date_gmt":"2018-09-18T15:38:14","guid":{"rendered":"http:\/\/sagefinancialsknowhow.com\/?p=248"},"modified":"2020-07-24T15:53:29","modified_gmt":"2020-07-24T14:53:29","slug":"taxtreatement_and_vat","status":"publish","type":"post","link":"https:\/\/sagefinancialsknowhow.com\/taxtreatement_and_vat\/","title":{"rendered":"How does Tax Treatment impact your VAT Return?"},"content":{"rendered":"

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Tax Postings in Sage Financials<\/h2>\n

\u2018Tax Breakdown\u2019 is the key to how VAT is handled in Sage Financials. In a previous article I went over how Tax is configured in Sage Financials<\/a>, so let\u2019s look at how Tax Breakdown works when you process invoices.<\/p>\n

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Each Invoice Line Item has a Tax Treatment and a Tax Code. These two are combined to work out the Tax Rate. As you enter Line Items, Sage Financials sums together the different Tax Rates and creates the Tax Breakdown:
\nIn this example four line items result in two Tax Breakdown records.<\/p>\n

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When you Post the Invoice you generate a Ledger Entry, Ledger Items and Ledger Entry Tax Breakdown records:
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And it is the Ledger Entry Tax Breakdown records that are used to populate the boxes on your VAT Submission form and reports.<\/p>\n

Reverse Charge<\/h2>\n

When purchasing from the EU or purchasing goods from outside the EU, the Reverse Charge rules apply. In Sage Financials this is handled by creating two Tax Breakdowns:<\/p>\n

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The net effect on your VAT Liability is zero, but it allows Sage Financials to fill in Box 2 and Box 4 correctly.<\/p>\n

Tax Treatment and your VAT form<\/h2>\n

It is perhaps worth revisiting the definitions HMRC use for the 9 VAT Boxes:<\/p>\n