Good day
In UK and SA VAT is on an invoice based system. The tax point is the earlier of receipt of payment or date of invoice. On Manager it seems to be set to invoice only and does not update tax due when early receipts are logged. This creates a non compliance issue as early payment is not captured in the correct VAT period. (i.e. if an invoice is for 1/06 and generated early in order to send to clients before 1/06 and the client effects payment on this invoice on 28/05 the system holds the VAT due at 1/06 instead of shifting it to 28/05 - being the earlier date hence the tax is due on the earlier of invoice or payment - this then creates an incorrect tax report and a non compliance issue)
This sounds like a difference between accrual and cash basis accounting. Which are you using?
More importantly, why are you post-dating sales invoices? The way to handle your situation is to enter the issue date as the invoice date and a future due date if the invoice is not due immediately.
Hi
Set on accrual basis for testing.
I don’t think I explained clearly. I want to create invoices for clients for the beginning of the next month and send the invoice to them by the 25th of the month (i.e. the invoice is for the 1st and sent out on the 25th of the previous month already giving the client 5 days “notice” that they will have an invoice due on the 1st). Some clients will however pay the invoice immediately on receipt even though it is only due between the 1st and 7th of the new month. The 1st being the issue date and the 7th being the due date.When I make a test invoice this way and receive a test payment it holds the tax due at the 1st instead of shifting it to the 28th (the date I recorded the test payment) as that is when the tax would be due.
I was wondering if there was a way to set it so that it picks up the payment date (if the invoice is paid early) as the tax date. Otherwise the tax will be in the wrong period.
The only other way I can think of to do this is to create pro forma invoices but that would involve a lot of extra work. I hope I have explained better what I want to do now and would really appreciate your input on the correct way to set it up.
Thank you
That is correct, the payment is only a transfer of funds between the customer and you. No sale has occurred until the invoice is effective - that is the 1st.
The tax relates to the date of the sale not the payment, otherwise, if they paid on the 5th then the tax wouldn’t be applicable until the 5th. The tax doesn’t shift because the payment is early or late.
Another way to think about what you are currently doing, @ZAR, if you want to continue with invoice dates of the 1st, is that a receipt on the 28th is essentially a deposit or advance from the customer. The customer does not yet owe you money, so you are not yet obligated to collect VAT from the customer, because you have made no sale. So you hold the deposit in the customer’s account. On the 1st, when the sale is made, VAT becomes collectible. Manager automatically applies the deposit to the new sales invoice, applying part to the goods or services invoices and part to Tax payable.
Depending on how customers remit, you may also have flexibility on when to record the receipt. For example, if they mail you a cheque, you could simply hold it until the 1st before depositing it.
Frankly, if you are going to raise sales invoices on the 25th, I would date them the 25th and include verbiage in the summary-level Description to indicate the service period. Think about the bills for your insurance premiums, publication subscriptions, or mobile phone service. Those are almost always billed in advance of the time period covered. What the customer should be paying attention to is the due date.
Yes, and whilst they appear to be billed in advance of the service period, in fact, they are generally just “notices” demanding payment prior to the start of the service period. However, internally of those businesses the sale doesn’t occur until the first day of that service period and only if a payment has been received.
These “notices” can be mostly recognised by the document lacking an exact date and by the wording used, which rarely includes the word “invoice”, such as Premium Renewal or Subscription Renewal or as per below:
Another give away is when the “notice” includes the wording such as:
Meaning that the undated “notice” is not a Tax Invoice until the date of payment.
This method means, that businesses don’t have to cancel/reverse “invoices” which aren’t renewed.
The “notices” just lapse.
@ZAR, @Brucanna makes valid points, with good examples. If you want to implement such a scheme in Manager, you could do so with sales quotes. Sales quotes include a built-in capability to change the title, without need for a custom theme. The quotes would have no financial impact. A non-renewal could be ignored.
When the customer pays, enter the receipt as though it were a cash sale, with no need for an intervening sales invoice.
The possible disadvantage of this approach is that you would lose the ability to create customer statements, because receipts for cash sales are not picked up for those. If you want that capability, you could copy the sales quote to a sales invoice and immediately record a receipt against the sales invoice.
@ZAR, before contemplating any changes to current processes you need to determine churn rates.
If you have a reliable renewal customer base then adding an extra process may have minimal benefit.
However, if you have a high rate of new customers and low rate of renewing customers, a change in process could be very beneficial.
Also, if you are utilizing Recurring Sales Invoice then you don’t have Recurring Sales Quotes as an alternative.
Thank you both, you’ve given me a lot to think about.
I really like the way this forum has not only technical advice on the program itself but also knowledgeable moderators who can advise on the application of information into Manager.
Kind Regards
