When payment based VAT processing is used, value added taxes are reported to the tax administration based on the month that the payment transaction has occurred. This is why there is a monitoring for the payment transactions of sales invoices, purchase invoices, travel invoices and expense invoices. A payment transaction can be generated automatically based on a bank statement or a reference payment. A payment transaction can be created also manually with the Marked paid status. This article includes also the handling of a partly paid sales or purchase invoice.
Three primary controls
In order that the payment based VAT processing is successful with invoices, these three primary control items have to be set correctly in the accounting page of the invoice:
- VAT status: Domestic, payment-based
- VAT date information in the accounting page
- Payment transaction
Only after these three controls exist on invoices, the value added tax can be included in the tax return for self-assessed taxes. A VAT summary has to be created in Procountor before the creation of tax return for self-assessed taxes that includes information about the target period’s cumulative VAT.
1 VAT status: Domestic, payment-based
The invoice’s accounting page must have Domestic, payment-based as the VAT status. The VAT status determines the section in which the accounting entry’s VAT is reported in the tax return for self-assessed taxes. Payment based VAT processing applies only to domestic sales and purchases. Domestic, payment-based status refers to the payment based VAT processing in which value added tax is reported to the tax administration in the period when the payment transaction has occurred.
If the entry’s VAT status is something else, the value added tax will be reported to the tax administration on accrual basis right within the period of the accounting date.
2 VAT date
VAT date visible in the receipt’s accounting page determines the reporting moment of VAT, i.e. the period when value added tax is transferred to VAT to be paid.
The invoice's VAT date will be the due date of the invoice by default. When an invoice is generated, it not yet specifically known when the invoice will actually be paid. The due date remains in the VAT date field until a payment transaction is generated for the invoice. VAT date field is not yet an active field before the payment.
A payment transaction updates the VAT date field automatically. Therefore, the payment date is transferred to the VAT date field so that value added tax is reported within the correct target period.
When a payment transaction is allocated to the invoice from a bank statement, the VAT date field will be updated even if the invoice’s receipt date was in a closed accounting period. However, payment transaction notes can’t be added manually to a closed period.
When the payment based VAT processing is in use, VAT summary will search for receipts in the target period that are paid and that have a VAT date within the target period in question. The VAT summary will not rule in the VAT dates of open invoices, since the VAT processing is based on the payment transactions.
3 Payment transaction
An invoice must be in Paid, Marked paid or in Partly paid status so that the invoice’s value added tax is transferred to the VAT summary as VAT to be paid. After this, the VAT summary is added to the tax return for self-assessed taxes, and the value added tax is reported to the tax administration within the period that the payment transaction has occurred in.
If the invoice is in some other status than Paid, Marked paid or Partly paid, the value added tax is not yet reported to the tax administration. VAT will be waiting in account 2931 Payment based VAT for a payment transaction.
A payment transaction can be generated automatically or it can be done manually with the Marked paid status. Payment date is automatically transferred to the VAT date field of the invoice’s accounting page. Payment transaction formation with different receipt types is described more thoroughly later in this article.
If a payment transaction is deleted, the VAT date does not change. VAT date will remain the same as the earlier payment transaction. When a new payment transaction is made for the invoice, the VAT date field will be updated with the date of the newer payment transaction. Effects of partial payments with different receipt types are described more thoroughly below.
Payment date and VAT date are in different periods
Procountor recommends that the payment date and the VAT date are always in the same period. However, it is possible that payment date and VAT date differ from each other in certain situations. In these cases, the VAT date has to be changed manually.
If the VAT date is edited manually, it is important to create a new VAT summary and tax return for self-assessed taxes in order to prevent a situation where value added tax would not be reported at all.
Payment transactions with different receipt types
This section goes through the meanings of payment transactions with different receipt types and different methods in payment transaction creation. The receipt types are Sales invoice, Purchase invoice, Travel and expense invoice and Journal receipt.
Payment transactions with a sales invoice
After a sales invoice has been created, it is approved and sent to the customer. Sent sales invoices will be waiting for the customer’s payments in bank statements. Below are listed different ways that create payment transactions for a sales invoice:
1 Reference payment
A reference payment creates a payment transaction for a sales invoice when the reference payment is allocated to an open invoice by a reference number. The sales invoice will have a payment transaction that can be looked at in the Special situations page of the invoice (Go to > Special situations).
2 Paying a reference payment with a wrong reference number
If the customer has paid a sales invoices with a wrong reference number, the payment is not automatically allocated to any sales invoice in Procountor. Reference payments can be allocated to the correct sales invoices with the Edit reference payment function (Payments > Bank statements and reference payments > Edit reference payment).
3 Paying a reference payment without a reference number
It is also possible that the customer has paid a sales invoices without any reference number. In these kinds of situations, the sales invoice payment transaction is visible only as a deposit on a bank statement. Therefore, the payment is not automatically allocated to the sales invoice. The payment can be allocated to the sales invoice in Bank statement allocation view.
4 Creating a payment transaction manually
A payment transaction can be created manually in the Special situations view of the invoice. The view is accessible from the Go to button of the invoice.
Creating a payment transaction in the Special situations view is done by clicking the Add payment transaction button. Payment date, payable sum, transaction description and payment method are given in the window that opens. At this moment it is recommended to especially focus on the payment date in order to ensure that the payment date is within the correct period. Continue button saves the payment transaction. After this, the sales invoice is set to Marked paid or Partly paid status. The payment date will be automatically transferred to the VAT date field.
Also, the due date of a sales invoice can be updated in the Special situations page if the due date has to be changed after the invoice has been approved. New due date is automatically transferred to the VAT date field. The due date is visible as the VAT date until the sales invoice gets a payment transaction.
Special situations view is used to create payment transactions, for example, in situations when a credit invoice is allocated to a sales invoice. The credited amount is marked as paid both on the original invoice and on the credit invoice.
It is also possible to delete payment transactions by clicking the Remove payment transaction button. Deleting a payment transaction does not have an influence on VAT date; the VAT date will be the date of the previous payment transaction. When a new payment transaction is made for a sales invoice, the VAT date field will be updated with the newest payment date.
5 Partly paid sales invoice
A sales invoice is set to Partly paid status when the payment transaction sum is different compared to the invoice’s open sum.
- When value added tax is processed on cash basis, it is important to know that the VAT can’t be divided into several payment batches at this moment. Therefore, the whole VAT portion of an invoice is set to be paid straight when the first payment transaction is allocated to a sales invoice.
The example below presents a situation where it has been agreed with the customer that a sales invoice is paid partly in three batches. The invoice has been created in July; at the same time, the VAT portion of the invoice has been set to account 2931 (to wait payment transactions) by VAT summary generation.
- The first partial payment is done in August when the customer pays 1000,00 euros of the whole amount of the sales invoice. In principle, only the corresponding value added tax (240,00 euros) would be adequate amount to be paid to the tax administration. However, the functionality doesn’t recognize partial payments at the moment.
- The first payment updates 1.8.20xx as the VAT date. After this, the VAT summary created in August enters the whole VAT amount as VAT to be paid. The VAT summary of August is added to the tax return of self-assessed taxes of August. This way the whole VAT amount (720,00 euros) is going to be reported to the tax administration already in August.
- If the value added tax was reported and paid to the tax administration in different payment batches, all different partial payments would need to have their corresponding partial sales invoices in the accounts receivable. A separate sales invoice would be sent for the customer for each partial payment. The amount of these invoices would then be 1000,00 euros + VAT 24%. All three sales invoices could be dated either with the same date in July or with dates in different months for each invoice.
Please note that if separate partial invoices are posted to different months, the value added tax is not entered to the account 2931 at all. Dates, accounting dates, VAT dates and payment transaction dates in the same period influence the VAT summary in a way that value added tax is instantly entered as payable VAT.
Payment transactions with a purchase invoice
A purchase invoice is paid through the Payment view. After a payment is generated, the purchase invoice is set to Payment queued status in which the invoice is waiting for a general payment run. Payments are transferred to the bank several times a day. When the payment batch has been sent, the invoice status is set to Payment sent to bank. The invoice remains in the Payment sent to bank status as long as a payment transaction is recorded and added to the invoice. A payment transaction may be formed automatically based on the bank statement, by bank statement allocation or by manually created Marked paid status.
1 Bank statement
A payment transaction is generated for the purchase invoice automatically based on the bank statement if the payment is made with a reference number. The payment transaction is identified by the reference number. The reference number of a purchase invoice is also visible in the bank statement. When a bank statement arrives to the environment, the purchase invoice is automatically allocated to Paid or Partly paid status.
2 A purchase invoice that is paid without a reference number
If a purchase invoice is paid without a reference number, the payment transaction is not automatically allocated to the right purchase invoice. The accounts payable will have an open purchase invoice that is actually already paid. The payment transaction in the bank statement can be fixed manually in the Bank statement allocation view.
3 Marking the receipt as paid manually
The purchase invoice can be set to Marked paid status that is used to mark the invoice as paid. When creating the payment record, it is recommended to pay attention to the payment date so that the payment based VAT is reported to the tax administration within the right month.
It is possible to go to the Payment view by clicking the Go to button on a purchase invoice.
Payment view has a strong controlling that aims to set the payment date always as the present day. The first step is to set the actual payment transaction date to the Payment date field. If it is needed to balance a credit invoice, the payment dates of both credit invoice and original invoice are set to the same period.
The sum in Pay field displays the open sum of the purchase invoice by default. If a partial credit note is made for the invoice, the correct sum has to be set in the Pay field. If additional information has to be given for the payment transaction, it is entered to the Message field.
When a date, sum and additional information has been given for the payment transaction, it is time to click the Mark as paid elsewhere button. The purchase invoice is then set to Marked paid or Partly paid status. The payment transaction date of the invoice is set as the VAT date.
4 Partly paid purchase invoice
A purchase invoice is set to Partly paid status if the payment transaction amount differs from the open sum of the purchase invoice. Purchase invoices can be paid in smaller parts if needed. Below is an example situation displaying a situation in which a purchase invoice of 3720,00 euros is paid in three batches.
According to the payment based VAT processing, the purchase invoice is formed in July and the value added tax refund is posted to account 2931 Payment based VAT to wait for a payment transaction right away in July.
The first payment transaction occurs in August. This leads to a situation in which the purchase invoice is set to Partly paid status. The partial payment transaction does not update the VAT date field; the VAT date will remain as same as the due date of the invoice.
In principle, only the corresponding value added tax (240,00 euros) of the purchase invoice’s payment would be adequate amount to be reported to the tax administration. However, the functionality doesn’t recognize partial payments at the moment.
Only after all partial payments have been paid and the purchase invoice is set to Paid or Marked paid status, the value added tax return is included in the VAT summary.
If it is needed to include the partial invoice-specific value added tax to different VAT summaries, three separate purchase invoices in line with the partial payments have to be created to the accounts payable. The dates of the purchase invoices can be either all in the original period or in different periods for each separate invoice. If the invoices are divided to their own payment months, the value added tax of the same month is transferred straight away to the month’s VAT summary on accrual basis.
Payment transactions with travel and expense invoices
The payment transactions of travel and expense invoices are handled the same way as with purchase invoices. A payment transaction is allocated to a travel or expense invoice based on a reference number on the bank statement. This leads to a situation in which the invoice is set to Marked paid or Partly paid status. It is also possible to do a bank statement allocation to travel and expense invoices and the invoices can be set to Marked paid status. More detailed look into the payment transaction functions can be seen under the heading concerning purchase invoices.
No payment transactions are made for journal receipts. There is a VAT date field on journal receipts that is used to determine the reporting period of value added tax. The payment based VAT functions the same way on the level of VAT summaries as it does with invoices. The only difference is that a payment transaction can’t be created for journal receipts. Value added tax processing is done in line with the VAT date right away when the journal receipt is in Approved status.
Receipts that are 12 months old
When using the payment based VAT functionality with sales invoices, purchase invoices, travel invoices and expense invoices, the following must be noted: there is a maximum time of 12 months for value added tax reporting and payment – therefore, VAT has to be reported and paid to the tax administration after 12 months even if there is no payment transaction for the invoice in question.
To meet the requirements of this rule, there is a function in the payment based VAT processing that automatically handles the VAT of the invoices that are waiting for a payment. Procountor displays the following warning when the user is making a VAT summary or a tax return for self-assessed taxes to a period that includes a non-reported receipt with a VAT date that is 12 months old.
In this situation, you have to decide whether you are going to treat the 12 month-old invoices as credit loss or pay the value added tax. If you choose to pay the VAT liability, the receipt will remain waiting for the customer’s payment. When the customer’s payment does arrive, value added tax of the invoice is not processed again.