Implementation of payment based VAT is done easily in VAT defaults view. However, a decent amount of time should be reserved for the implementation in order to make necessary changes rapidly to the posting defaults that already exist in the environment.
Planning the transition phase
Implementation of the payment based VAT should be carefully planned beforehand. This way you can create room for all necessary actions within the transition.
It is recommended to make the transition when the last accrual basis period has recently been closed. In this situation, there shouldn’t yet be a lot of receipts in the newly started accrual basis period. This reduces manual work in the first payment based period.
Before activating the payment based VAT, check the following details from the accrual basis periods:
1 Check that every receipt that belong to the accrual basis period is included in the last accrual basis VAT summary:
- Sales invoices, purchase invoices, travel and expense invoices, bank statements, journal receipts.
2 Check that all accounting pages of the accrual basis period’s receipts have Domestic as the VAT status.
- This is important detail; VAT status determines that all value added taxes that are reported in the accrual basis procedure are also included in the notifications sent to the authorities.
- If you have to do VAT-related changes to the accrual basis period later, you must use Domestic as the VAT status with the accounting entries. Domestic status can be temporarily activated for the changes in VAT defaults view.
- After the payment based VAT has been enabled, Domestic status is removed from the list of VAT statuses.
3 Balance the accounting entries:
- Detailed look into reconciliation is available here.
4 Check that no unfinished receipts are left in the period.
- Transferring unfinished receipts to the new period can be done in Accounting > Reconciliation tools > Transfer of unfinished transactions.
- Remember to transfer also the accounting pages of unfinished sales and purchase orders to the next open period so that they do not get locked to the previous period.
5 Check that a VAT summary has been created to the last accrual basis period.
- VAT summary is created in Accounting > VAT summary.
- In this last VAT summary of accrual basis periods, all VAT transactions are entered to account 2930 VAT liability.
6 Check that a tax return for self-assessed taxes has been created to the last accrual basis period.
- Tax return for self-assessed taxes is found in Notifications > Tax return for self-assessed taxes.
- It is important to close necessary months in order to prevent new postings in the old accrual basis periods.
When implementing payment based VAT, it should be noted that Domestic VAT status is deactivated. Reporting and paying value added tax in cash basis is done when the environment uses Domestic, payment-based status instead of the Domestic status.
If the Procountor environment has a lot of posting defaults that use Domestic as the VAT status, these statuses have to be manually converted to the Domestic, payment-based status. In the transition phase, it is also useful to go through all receipts in accounting so that these unreported (for the time being) accounting entries can be changed to match the requirements of the payment based VAT processing.
It is recommended to revise the whole accounting material before activating the payment based VAT. However, it is also possible to return to accrual basis periods to make accrual basis related changes after the payment based VAT processing has been enabled. These kinds of actions require the re-activation of Domestic status. Changes to a accrual basis reporting period have to be made in accrual basis so that all value added taxes are included in VAT summaries and tax returns for self-assessed taxes.
This is how the function is activated
Payment based VAT processing can be activated in environments that have one month as the value added tax reporting period. The reporting period can be edited in Management > Accounting info > Tax information.
After the payment based VAT has been enabled, Domestic VAT status is disabled, and it is replaced with Domestic, payment-based VAT status. In the beginning of the implementation you will get a list of settings and receipts that use the Domestic status.
If Procountor displays a listing like the one below, secure it for possible later use. You can open this list in HTML, Excel, or PDF. When you have saved the list to your own computer to a place you can easily find it again, you can close the list by clicking the Close button. This list can’t be created again after the payment based VAT has been taken into use.
Procountor asks you to create a new account to the account chart. This new account will be later used in the VAT summary that includes an automatically generated entry for the payment based value added tax.
Edit account chart button opens a view that is used to edit the account chart. Drill down into the right account group. We recommend creating the new account for payment based VAT into the same account group with the accrual basis VAT account (2930). The correct account group is found in the following section: 200 Balance sheet Liabilities > 260 Creditors > 280, Creditors, short-term > 292, Other creditors account group. Activate the group heading and click Add sub account button in the top bar of the page.
Give account details in the New account window that opens: determine an account number (for example 2931) and account name (for example Payment based VAT). After this, save the account to the account chart.
Please note that the account number for the payment based VAT account can’t be changed afterwards. Also, the account can’t be deleted later either.
After this, the payment based value added taxes will be entered to this newly created bookkeeping account even if payment based VAT was temporarily disabled. Enabling the function again activates this account again for use.
You have to verify the chosen account by clicking OK button.
Guided implementation will also display a reminder about the need for saving the given information and changes. Save button is located in the top bar of the VAT defaults view. After these steps and saving the information, the payment based VAT is activated in your environment.
After payment based VAT has been enabled, the history log will display information about the time when the function has been activated in the environment.
When payment based VAT is activated in the VAT defaults view, it disables the Domestic VAT status. The VAT status list will display a new VAT status: Domestic, payment-based.
Check the VAT statuses from the accounting pages of first receipts that are entered to the payment based period. The accounting pages should be gone through one-by-one in order to choose the desired VAT handling for each receipt. Receipt search is found in Search > Receipt search.
New functions that are available after enabling the payment based VAT
Domestic VAT status, payment based processing
When payment based VAT is activated in an environment, it disables the Domestic VAT status. The disabled status will be replaced with a new VAT status: Domestic, payment-based.
Enabling the payment based VAT processing affects only the Domestic status; all other VAT statuses will remain as they were earlier.
New bookkeeping account for the payment based VAT
When the function is enabled, a new bookkeeping account has to be created in the account chart for the VAT liability entries of payment based VAT processing.
New VAT date field
When the function is enabled, a new VAT date field is activated in Accounting view. When VAT is processed according to the payment based VAT rules, the date set to the VAT date field is due date of the invoice by default. This new field is used to determine when value added tax is included in the tax return for self-assessed taxes. VAT will be included to the tax return for self-assessed taxes only after the payment transaction has happened as per the real payment date.