Applying Deductible VAT: Process Activity

The following activity will walk you through the process of partially deducting VAT amount.

Story

Suppose that on February 1, 2024, SweetLife Fruits & Jams purchased office supplies to be used in the company's office. Further suppose that the company is allowed to deduct 40% of the taxes paid on these kinds of purchases from the tax amount paid to the tax authority. Acting as a SweetLife accountant, you need to process an AP bill and prepare a tax report for the 02-2024 period.

Configuration Overview

In the U100 dataset, the following configuration tasks have been performed to prepare the system for this activity to be performed:

  • On the Enable/Disable Features (CS100000) form, the VAT Reporting feature has been enabled.
  • On the Vendors (AP303000) form, the CARTRIDGE vendor has been configured.

Process Overview

In this activity, on the Vendors (AP303000) form, you will update the vendor's tax zone. On the Bills and Adjustments (AP301000) form, you will process an AP bill with a partially deductible VAT applied to it. Finally, on the Prepare Tax Report (TX501000) form, you will prepare a tax report for the 02-2024 period and review the prepared report on the Release Tax Report (TX502000) form.

System Preparation

To prepare the system, do the following:

  1. Launch the MYOB Acumatica website, and sign in to a company with the U100 dataset preloaded. You should sign in as an accountant by using the johnson username and the 123 password.
  2. In the info area, in the upper-right corner of the top pane of the MYOB Acumatica screen, set the business date in your system to 2/1/2024.
  3. On the company and branch selection menu, on the top pane of the MYOB Acumatica screen, select the SweetLife Head Office and Wholesale Center branch.
  4. As a prerequisite activity, be sure that you have created the CANADA tax zone on the Tax Zones (TX206000) form as described in Tax Zones and Categories: To Create a Tax Category and Tax Zone for VAT.
  5. As a prerequisite activity, be sure that you have configured the VATVAR tax agency as described in Tax Report Configuration: To Create a Tax Report for VAT Variations.
  6. As a prerequisite activity, be sure that you have configured a tax report on the Reporting Settings (TX205100) form and have added reporting groups to the tax report. For details, see Tax Report Configuration: To Create a Tax Report for VAT Variations.
  7. As a prerequisite activity, in the company to which you are signed in, be sure you have configured a partially deductible VAT as described in Value-Added Taxes: To Create a Partially Deductible VAT.

Step 1: Updating the Vendor's Tax Zone

To update the tax zone of the CARTRIDGE vendor, do the following:

  1. Open the Vendors (AP303000) form.
  2. In the Vendor ID box, select CARTRIDGE.
  3. On the Purchase Settings tab, select CANADA in the Tax Zone box.
  4. On the form toolbar, click Save.

Step 2: Processing an AP Bill

To process an AP bill with a partially deductible VAT applied, do the following:

  1. On the Bills and Adjustments (AP301000) form, create a new record.
    Tip: To open the form for creating a new record, type the form ID in the Search box, and on the Search form, point at the form title and click New right of the title.
  2. In the Summary area, specify the following settings:
    • Type: Bill
    • Vendor: CARTRIDGE
    • Date: 2/1/2024 (inserted by default)
    • Post Period: 02-2024
    • Description: Office supplies
  3. On table toolbar of the Details tab, click Add Row and specify the following settings for the added row:
    • Branch: HEADOFFICE
    • Ext. Cost: 350
    • Account: 81000 - Other Expenses
    • Tax Category: DEDUCT
  4. On the form toolbar, click Save.
  5. On the Financial tab, review the Vendor Tax Zone box, which contains CANADA.
  6. Review the Taxes tab. The total tax amount calculated by the specified tax rate is $52.50 ($350 * 0.15). The Tax Amount of $21, which is 40% of the Tax Total, is to be claimed from the tax agency. The Expense Amount of $31.50 is the non-deductible part of the VAT that is posted to the Tax Expense account.
  7. On the form toolbar, click Remove Hold and click Release to release the bill.
  8. On the Financial tab, click the Batch Nbr. link and on the Journal Transactions (GL301000) form, which opens, review the generated GL transaction. On release of the AP bill, the system generated the following entries:
    • The Accounts Payable account of the vendor (20000) is credited in the total amount of the bill (line amount plus the calculated tax total).
    • The expense account specified in the document line (81000) is debited in the amount of the purchase.
    • The Tax Claimable account specified for the tax (17000) is debited in the calculated deductible amount that will be claimed from the tax agency.
    • The Tax Expense account specified for the tax (65100) is debited in the tax expense amount (the total tax amount minus the deductible part) to record the non-deductible part of the VAT.

Step 3: Preparing a Tax Report

To prepare a tax report for the 02-2024 period, do the following:

  1. Open the Prepare Tax Report (TX501000) form.
  2. In the Summary area, specify the following settings:
    • Company: SWEETLIFE
    • Tax Agency: VATVAR
    • Tax Period: 02-2024 (selected automatically)
  3. On the form toolbar, click Prepare Tax Report.
  4. On the Release Tax Report (TX502000) form, which opens, review the prepared tax report.

    The Deductible VAT report line shows the tax amount of $21. This amount should be claimed from the tax agency, so it is included in the Net Tax to Pay or Reclaim line with a negative sign. Notice that the non-deductible part of the tax is not included in the tax report, because it is already processed as company expenses.

  5. On the form toolbar, click Void Report.