Correct way recording VAT payments/returns

First of all, thanks for a great program.

In our country we have to pay VAT every 2 months. The program shows one default Liability of “Tax payable”. How do I go about to correctly enter VAT payments and VAT returns?
For example: Tax payable shows $2000.

End of February I pay $2000 VAT. How would I correctly enter this? If I make a Journal entry and debit the Tax Liability account then my suspense account also gets an entry which I obviously don’t want.
Similar with VAT returns, if I make a Journal entry and credit the Tax Liability account the suspense account also gets an entry.

Do I have to create some extra accounts somewhere and make Journal entries that have both debit and credit entries? Or is there another way to compute VAT payments and returns so that the Tax Payable account shows the correct amount after VAT payments.

Journal entry must always balance. Debits must equal credits otherwise the difference will go to Suspense account. This is core principle of double-entry accounting.

The question is why are you recording VAT payments through journal entries? If you pay your VAT from your bank account, you should just record it under Bank Accounts tab as regular Spend Money transaction categorized to Tax liabilities account.

Where do I find the Tax liabilities account? That is how I wanted to do it initially. However, the Tax liabilities account is not selectable in the account drop-down list. Under the Liabilities there is only Accounts Payable and Customer Advance Payments. Please advise.

You are correct. Tax liability account should have been in the list of accounts when recording payment or receipt.

Try the latest version (14.2.23) where this has been fixed.

In Greece when you print an invoice for the goverment, and you owe the goverment, part of the money they would pay you on your bank account is deducted from the money you owe for VAT or Income TAX instead of going to your bank.

For Income tax I used the journal and created an expense account and a liability account.
For VAT a liability account exists allready , should I create an expense account and thats it?

So how do I deduct from the VAT Tax I owe the goverment correctly? Since I didn’t pay from bank,cash accounts, but they were deducted from the money I should receive from one of the goverment agencies?

Can you use a negative amount on the invoice and allocate it to the VAT liability account? Or does the government decide independently how much to deduct? If they decide, then when you receive money, you could do the same thing.

They decide independently.
Most of the times is 10% of the invoice or 1 installment of how much you owe them i.e if you owe them 1200 euros and you pay 120/month and the 10% of the invoice is 200euros , they’ll get the 200.

I’ll take it from the start

You buy and sell stuff.
Lets say you don’t pay your VAT tax for the ammount of 12000 euros and you owe some Income tax as well.
You want to get payed from the goverment for an invoice of 3000 euros
The goverment agency asks for a confirmation from the VAT Office that everything is allright.
They see its not allright and they ask you to pay the 12000 euros in 12 months
You pay the VAT Office 1200 for the first month and they give you a confirmation that you will hand the agency that says:
Pay this business their invoice but keep X ammount euros and give them to the VAT office bank account instead.
The agency will then give you the rest.
When you go back to the VAT office another day they will either tell you, you owe less and thats it, or they will give you a receipt that will merge ,consolidate the money the agency kept from you.
So now I have a receipt infront of me that tells me:
Receipt of merging credit and debit (or something)
Income tax X ammount + Y ammount increment
VAT tax X2 amount + Y ammount increment
And those are the accounts they deduct that money from.

Thanks for the details. So I think the way to handle this is with extra lines when you receive money against your sales invoice. If total invoice was X, tax withheld by the government was Y, and resulting payment was Z, allocate X to the sales invoice or Customer credits, -Y to the tax liability account, leaving Z to go into the bank/cash account. I hope that makes sense.

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