But when this Inventory Item is sold, the Tax field in the sales invoice is prefilled with the Input Tax (blue box) where as it should be Output Tax associated with the account.
It would therefore be preferable to have the Output Tax associated with the account “Inventory Sales 24%” and override the Input Tax which prefills the Tax field on Sales Invoices.
@lubos can you pls look into this ? I know this can be corrected manually each time on sales invoices but if users don’t rememer to make this change each time then output tax gets directed wrongly which would impact VAT balancing for tax reports.
If you create a single tax code “VAT 24%”, Manager (mostly) keeps track via the “Tax Summary Report” of
Purchases with VAT 24% applied
Sales with VAT 24% applies
Note calculation of this report currently has a classification error for negative sales or purchase line items in cash transactions or journal entries but I believe this is how Manager tax codes are designed to be used.
In my country, Iceland, separate tax codes is standard procedure for recording VAT, and in line with what every business is doing and how tax authorities structure tax reports. I know VAT setup is kind of like culture, where as it depends on where you are in the world and nothing is right or wrong as such in this regard. But by doing it this way, you can for example take all sales accounts with VAT 24% for a certain tax period, sum them up and multiply with the VAT%, here 24%, and you get a number which, if you have done the books correctly, should be the same as the sum in the Output tax account for the same period.
I’m not sure if separate settings for sales & purchase entries are suppose to be recorded but the recommended way of accounting for VAT in Iceland is to download the Iceland tax codes https://www.manager.io/localizations/is/ which assumes you use the “Tax summary report” to separately report sales & purchases
@Tor, you misunderstand how default tax codes are applied in Manager.
A tax code set for an inventory item is applied to it whenever it is invoked for a transaction, no matter what type. For a sales invoice, the tax calculated is credited to the Tax payable account as part of balancing the amount of the inventory plus tax debited to Accounts receivable. (The remainder is credited to whatever income account is selected.) Thus, the tax code selected for an inventory item has nothing to do with the income account where the value of the item sold is recorded. For a purchase invoice, the tax on an inventory item is debited to Tax payable, where it offsets the tax collected when the item is sold. In this way, Tax payable records the net of input and output tax, resulting in the figure that you owe the tax authority.
A tax code set for an income account applies to amounts posted to that account. The amount credited to an income account for sale of an inventory item has already been taxed at the item level. So no tax should be applied by default to an inventory income account, because that results in double taxation. Default tax codes for income accounts should only be chosen for accounts where you post otherwise untaxed sales, such as of services. (This is partly why sales of inventory are recorded by default to Inventory - sales, rather than being lumped in with other types of sales.)
@Patch is correct. The same tax code should always be used for purchases and sales of the same inventory item. This way, you get the benefit of offsetting described above, as well as the ability to use all of Manager’s built-in reports and automatically created accounts. This concept is so deeply embedded in Manager’s design that, if you ignore it, you cannot use any of Managers built-in tax accounts or reports. You must bypass the Tax payable account entirely. Procedures for doing that (for a completely different reason of multi-component custom tax codes) are described in this Guide: Work with multi-component custom tax codes | Manager. It would be a lot of work for, in your case, no return and many possibilities for error. You would be far better off using the standard Icelandic localizations and relying on the automatically created accounts related to inventory and taxes.
As a side note, there are many Manager users in Iceland. As far as I know, none of them do things the way you are trying to. Certainly no one has complained about using the Manager structure as designed in the past five years.
@Tut thank you for your thorough answer but I think there is still some misunderstanding, the thing is Net for VAT would be fine by me as such and I know that is how Manager runs by default, but what I am trying to do is adapt Manager to fit the “nondefault” local approach of how businesses do their VAT in their books. That approach has not been Net in Tax Payable for all VAT records as you @Tut mention, but Brutto where Input tax is collected in one account and Output tax is collected in another account. Then when tax is due, these two accounts are combined in the Tax Payable account. This is only an extra step in the process of gathering VAT records, with the same outcome as with the Net method in the Tax payable account. Kind of like having two Tax payable accounts, one for input tax and the other for output tax. This has at least been the way of doing things but maybe it has changed…will have to check upon that.
Otherwise after some testing, using Input and Output VAT tax in Manager seems to work fine, except this prefilled Tax field for Inventory Sales it seems. Tax Summary report shows correct Total for each column so that report can be used. Don’t think the custom tax would apply as there is always the same VAT used.
I understand VAT is originating in the Inventory Items module and not Sales Invoice, so if it cannot be changed, atleast a soulution for a business would be to have a separate Net VAT account for Inventory items…
You can follow your approach of different taxes and accounts to accumulate them for input and output VAT. But you cannot combine them in Tax payable except by journal entries. And, if you are going to do that, why not use the default approach and skip the journal entries?
What are you referring to with this comment? You seem to be saying that, in your experimentation, input and output VAT accounts work, except for the default tax code field on the Inventory - sales account. On that, I have two comments:
As already mentioned, you should not be using a default tax code for Inventory - sales (a point I made earlier), so there is nothing to not work.
If you are going to bypass the built-in structure of the program’s tax features, you cannot expect any of it to work (a point also made earlier).
I don’t understand this comment for several reasons:
When you create your own Input VAT 24% and Output VAT 24% tax codes, those are custom tax codes. So, if you go that route, custom tax codes definitely apply.
You now say the same VAT is used, but you said just before that you were using separate input and output tax codes. Which is it?
My reason for mentioning the portion of the Guide about dealing with multi-component custom tax codes was that it illustrates how to segregate reporting of custom tax codes outside the Tax payable account, something you said you wanted to do.
That is not true. The tax calculation occurs in whichever tab you are in while entering a transaction line item to which you apply a tax code. That could be Sales Invoices, Purchase Invoices, or Receipts & Payments. What happens in the Inventory Items tab is definition of any default codes to be applied.
That is what Tax payable is for businesses that only sell inventory items. If you also sell goods or services that are not inventory items, you could create one according to the procedure in the Guide on multi-component taxes. However, you would then need duplicate tax codes for every rate for inventory item sales and other sales, each set up independently according to that process. For your country, that would mean 16 tax codes, 16 independent accumulation accounts, 8 net accounts, etc. I really do not see the point just to adhere to a tradition that probably predates computerized accounting systems. Why not rely on the Tax Summary already available?
yes I realise Inventory Sales account should not have VAT associated with it as VAT from inventory sales is not calculated on that level. My point was only when VAT is calculated it is “differently presented” than expected when trying to adapt Manager to local nondefault VAT setup, as we have discussed, but it doesnt matter if I just know about it how it works (Net) and make arrangements (with journal entries) to present it the way local businesses want (Brutto)
VAT calculation, that is the numbers in Manager are ofcourse always correct, the presentation was only what I was asking about earlier
As it is always the same VAT% was it supposed to say, my point was Custom VAT didn’t apply as Custom VAT seems to be thought for use with more than one level of Tax calculation or part of the products, as I see it after reading the guide. The guide talks about Custom VAT could apply for example if there is like one state tax and one city tax for the same transaction. Besides Custom VAT is not included in the VAT reports it seems which is not preferable. Also of concern is having all VAT fields automatically prefilled for records…
Guide - Multi-component custom tax codes present several accounting challenges. Individual tax components may be:
Levied by different tax authorities
Payable to tax authorities on different dates
Subject to rate changes at different times
Applicable to different customers
Effective only for certain categories of goods or services
Atleast I don’t see as of now exactly how it can be used for this purpose or can you please advise ?
Yes, I agree Tax Summary is preferable. But in this case I think you could say “old” or “nondefault” business approach and local tax regulations overrides preferable IT approach but hopefully it will change with time as Tax Summary is the way to go as is more simple to use and no need for manual Journal Entries
