How does the payment Cash based VAT system work?

Summary

In this article you will learn how to process Withholding Tax on Sage 50cloud Pastel Accounting.

Resolution

You can use the tax system Payment/Cash Based VAT. You can set this under Setup Tax General Settings screen as below.

The Vat for customer or supplier payments will only show on the vat report if your company’s tax system has been set to Payment /Cash Based VAT. Please find below explanation on the different Tax Systems.

Tax System

In this field, you choose a tax processing method. You have three options:

Option

What it Does

Do Not Use Tax

The system will not ask for tax codes, nor will it ask for exclusive and inclusive amounts. Usually only very small businesses are completely exempt from tax processing.

Normal VAT / Sales Tax

Use this option for any standard form of sales tax, goods and services tax (GST) or VAT. As you process sales, the system accumulates the tax liability. If there is a requirement, the system offsets the liability with any tax you pay on purchases. This is by far the most common option.

Payment/Cash Based VAT

In some countries, smaller businesses are able to defer the payment of taxes on sales until the customer actually pays them. Tax credit or liability only occurs when you receive a payment from a customer or make a payment to a supplier. The system holds the provisional liability / tax credit until you process a receipt or payment, after which it transfers the provisional amount to the tax control account.

Note If you use open item processing for customers and suppliers, the system cannot make the tax adjustment until you allocate the payments or receipts to their original invoices. The system determines how much tax is due only by looking at the original invoices. If you leave payments and receipts unallocated, you will fall behind in your tax payments and reporting.

Please find below notes to assist with selecting the correct general ledger accounts for Tax Control Account and Tax Provision Account.

Tax Control Account

Enter the general ledger account number for the tax control account in this field. Valid financial categories for this account are current liabilities, unallocated balance sheet or other current assets.

This is a standard database entry field. You can enter the code to select a record. In addition, you can use the Zoom facility to select or edit records, and the Add facility to create records.

Tax Provision Account

You can only enter the tax provision account if you choose Payment / Cash Based VAT as the tax system.

In this method, tax becomes due or claimable only when you receive or make the payment. When you process the sale or purchase, the system needs a holding account to accumulate the potential or provisional tax amount.

Valid financial categories for this account are current liabilities, unallocated balance sheet, or other current assets.

This is a standard database entry field. You can enter the code to select a record. In addition, you can use the Zoom facility to select or edit records, and the Add facility to create records.

Please see invoice below processed for a company that is set to use Payment/Cash Based VAT. When you process the invoice the accounts are affected as below.

The customer’s account will not be affected by this.

When the customer pays the tax amount is moved from the Tax Provision Account to the Tax Control Account.

Solution Properties

Solution ID: 200203073942131
Last Modified Date: Tue Nov 14 02:56:33 UTC 2023
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