Payment based VAT processing has an effect on the time when value added tax is reported. Payment based VAT influences also the accounting process of value added tax. Therefore, it is useful to go through the payment based VAT processing in Procountor step by step with an example. The example is about a sales invoice that is processed on cash basis. The invoice is created to July's period, but it is paid in September. The example includes the specific fields and functions that are central in reporting the value added tax to the tax administration at the right moment (within the month of the payment transaction. Briefly, the example is as follows: the accounting entry of a sales invoice is made in July, and the invoice's value added tax is reported to the tax administration in September.
A new sales invoice is created
Payment based VAT function has been enabled and the sales invoice is created. An accounting page is generated for the invoice right away. The date in the Invoice date field of the invoice is transferred automatically to the accounting page as the receipt date. The date in the Due date field of the invoice is transferred automatically to the accounting page as the date in the VAT date field. The invoice is approved and then sent to the customer.
Because the invoice has not yet been paid, it is open in the accounts receivable.
Dates of the invoice and the accounting page on a timeline
The sales invoice and the corresponding accounting page are both dated in July. The due date and VAT date are, however, dated in September.
Since the invoice hasn't been paid yet, it is still open.
Accounting of the invoice in the period of 7/20xx
The date of the sales invoice is 7.7.20xx. An accounting page has been generated by the invoice for the same date, 7.7.20xx. The accounting entries of the invoice are posted in July; therefore, the revenue of the sales postings is visible in the income statement of July.
The sales invoice is open. Therefore, the receivable amount is posted to account 1700.
The value added tax of sales is handled on cash basis
The payment based VAT processing (or cash basis processing) means that the sales VAT is reported and paid to the tax administration not until the month that the invoice is actually paid in.
In order to make payment based processing possible with sales:
- The VAT status of accounting entries has to be Domestic, payment-based.
- Moment of the VAT reporting is set to the VAT date field.
In this example, the sales invoice is still open, so the VAT date field on the accounting page displays the invoice's due date as default date.
VAT summary in period 7/20xx
The accounting entries of the sales invoice are visible in July's accounting, on 7.7.20xx. The portion of value added tax is handled in July's accounting in order to balance the income statement and balance sheet in July. The payment based VAT of the invoice is not reported to the tax administration in July since the VAT is reported not until in the month when the payment transaction occurs.
July's VAT summary forms an accounting entry of the payment based VAT to account 2931 Payment based VAT in the balance sheet. Payment based value added tax that is posted to the account in question is not included in the tax return for self-assessed taxes of July.
The invoice is open in the end of July. This means that the portion of VAT will remain on the account until the sales invoice is actually paid. When the invoice is paid, the accounting entry of the VAT portion is cleared.
Payment based VAT personal ledger 7/20xx
In reconciliation tools of accounting, there is a Payment based VAT personal ledger report (Accounting > Reconciliation tools > Payment based VAT personal ledger). This report displays all receipts that include non-reported value added tax that has to be reported to the tax administration later. Tax return for self-assessed taxes must have Sent status so that receipts are removed from the report.
The sales invoice in this example is visible on the Payment based VAT personal ledger. The report indicates that the invoice's value added tax should supposedly be reported in the tax return for self-assessed taxes of September.
The report shows that the VAT date of the invoice is 9.9.20xx and VAT to be paid in August is 1446,40 in total with this receipt. It is possible to drill down into a single receipt's accounting page that has been used to make the original VAT entries.
The sales invoice is open for whole August
Nothing happens with the invoice in August 20xx. Therefore, the invoice remains open in the sales receivables. The invoice is not included in the VAT summary of August since the accounting of the invoice was already handled in July.
The invoice is not paid in August. This means that the VAT portion of the invoice remains in the account 2931 Payment based VAT. The invoice is visible in the Payment based VAT personal ledger report because the invoice has not yet been reported to the tax administration with tax return for self-assessed taxes.
The customer pays the invoice on 20.9.20xx
The due date of the invoice was 9.9.20xx.
- The customer pays the invoice on 20.9.20xx as a reference payment.
- The payment transaction is visible on the bank statement as a deposit on 20.9.20xx.
- The payment transaction is visible as a reference payment on 20.9.20xx.
The payment creates a payment transaction for the sales invoice on 20.9.20xx and the invoice is set to Paid status.
The payment transaction updates the VAT date
Originally, the VAT date field on the accounting page of the invoice has been the due date of the invoice (9.9.20xx). Now, after the customer has paid the invoice, a payment transaction has been generated for the invoice.
The date of the payment transaction is automatically transferred to the VAT date field on the invoice's accounting page. The VAT date field is updated by the payment transaction even if the accounting page of the invoice belongs to a closed accounting period.
It is necessary that the VAT date field is updated to match the actual payment day in order to report the value added tax of the invoice to the tax administration on cash basis at the right moment.
The payment transaction activates the VAT summary
Domestic, payment-based is used as the VAT status on the invoice's accounting entries.
This VAT status (Domestic, payment-based) is activated when the payment based VAT processing is enabled.
In comparison, the Domestic VAT status functions always on accrual basis.
The date in the VAT date field on the invoice's accounting page is in the same period within the payment date (in period 9/20xx). VAT date field determines the period in which the information is collected to the report.
The sales invoice is in Paid or Marked paid status. The invoice must have a payment transaction in order to enable the payment based VAT processing on the VAT summary.
VAT summary 9/20xx
The invoice is paid on 20.9.20xx and the VAT date is also the same as the payment date (20.9.20xx). Now, the cash basis VAT has to be reported with September's tax return for self-assessed taxes.
The following postings are made in the VAT summary of September:
- Sales invoice VAT is posted out of the account 2931 Payment based VAT
- Sales invoice VAT is posted to the account 2930 VAT liability
Examining the accounting entries of the VAT summary on an account level
Account inspection report can be used to examine the accounting entries created by the VAT summary.
After the VAT summary was generated for September, the account 2931 Payment based VAT is balanced to zero. This happens because this example includes only one sales invoice and the corresponding payment based VAT transactions of that particular invoice. When there is a lot of cash basis accounting entries, the account 2931 includes all receipts that are waiting for a payment transaction.
The value added tax of a sales invoice remains in the account 2930 VAT liability waiting for the creation of a tax return for self-assessed taxes.
Sales invoice VAT is reported on the tax return for self-assessed taxes in 9/20xx
The payment transaction of the sales invoice and VAT date in the September's period activate the VAT summary of 9/20xx. The sales invoice VAT is transferred to the VAT summary and to account 2930 VAT liability.
The VAT summary of September is taken to the tax return for self-assessed taxes of 9/20xx. Sales invoice VAT is included in the value added taxes that are reported to the tax administration.
Tax return for self-assessed taxes is then sent to the tax administration; the notification is then in Sent status.
The audit trail of value added tax
Payment based VAT personal ledger 9/20xx
The sales invoice dated in July is reported in Septembers's (in line with the payment date) tax return for self-assessed taxes in the period of 9/20xx. The tax return for self-assessed taxes is in Sent status.
- The payment based VAT personal ledger report does not shown the sales invoice VAT anymore.
- The invoice is paid in September.
- The VAT summary of September has posted the sales invoice VAT to be paid in period 9/20xx.
- Tax return for self-assessed taxes has been sent to the tax administration.
- The sales invoice has been completely posted to the accounting and the corresponding VAT has been reported to the tax administration.
- The Sales VAT will be paid to the tax administration in accordance with the correct payment date of the tax return for self-assessed taxes that has been created for period 9/20xx.