Setting tax codes for inventory items

According to January product updates summary for Manager there was a change in tax accounts where as tax liability accounts are set independently for each tax code. Is it possible to have this also done for Inventory Items as there is only one option for tax code ?

It would be prefereable to have this option

Please do not divert topics with unrelated questions. This question did not pertain to the topic where it was posted, so it was moved to its own topic, where it can receive more attention.

No, not as you show. Manager’s tax functions work on the basis of offsetting input and output taxes, as with typical VAT schemes. So, whether you are buying or selling the inventory item, the same tax code applies.

When items are subject to different tax codes, you can define and select the tax code independently for each inventory item. For example, food items might be subject to a different tax code than clothing, and the tax remittances might go to different tax authorities. So you would select different tax codes for milk and shirts. But you would not select different tax codes for the income and expense accounts. Those accounts control where the non-tax portion of any transaction is posted. the tax code controls where the tax portion goes.

You can, however, set tax codes for income and expense accounts that are not part of larger, hard-coded functionality—like Billable time - invoiced. So you could set up your custom income and expense accounts so everything going into them gets a specific tax code applied. Be careful, though, that you do not end up double-taxing line items.

@tut yes I agree the question can receive more attention with its own topic, but still as you say “…you would not select different tax codes for the income and expense accounts.” but that is what the other topic was actually about as my local tax authorities want the tax setup very detailed where you have to select different tax codes for the income and expense accounts. I actually don’t prefer that as such over the international setup, but only trying to follow local tax regulations prescriptions. Maybe it is possible to figure out some other way to do this in Manager besides extracting this from reports…

That is actually quite easy due to the recent change to the program. You just need to create parallel tax codes and assign them to different liability (or asset, if you prefer) accounts. For example, create:

  • Input VAT 20% and assign it to an account named 20% VAT Paid. This can be an asset account, as the amounts will be debits. Or it could be classified as a liability account, where it will be a contra to the one below.
  • Output VAT 20% and assign it to an account named 20% VAT Collected.

The difference between the two will be your tax liability to remit. You would need to remember which tax code to apply to sales and purchases. The separation of tax on purchases and sales is already taken care of in the built-in reports. I would consult a local accountant to see if those aren’t sufficient.

I find it interesting that no one else has ever asked about such a capability. That leads me to wonder if you have misunderstood the regulations or, perhaps, gathered information from ill-advised sources. You would definitely not be the first. It’s always best to go directly to the primary, written regulatory source.

@tut sorry for not stating more clearly but what I meant was the tax split for inventory tax. What you mention in your last post is what I have already done.

I read the regulation which states this clearly and had it confirmed with tax specialist working for the tax authorities so there are only quality and first hand sources.

Every tax code in Manager actually consists of two separate tax codes, one for sales another for purchases. The totals are maintained separately in Manager. Other accounting packages have more clearly different single value tax codes to achieve the same function.

I do not understand what you mean by “inventory tax.” The tax codes in Manager are for taxes levied by line item, such as VAT or sales taxes. If you are being taxed on inventory you hold (a form of property tax), that would be assessed the basis of inventory on hand value. Tax codes would not enter the picture.

@tut what I meant with inventory tax was two tax codes for each inventory item, just as the title in the topic says and demonstrated in the image in top. With tax codes I don’t mean the percentage as such but where the tax calculation originates, that is from purchases or sales, although both use the same percentage.

It would also give more insight into this inventory items tax codes to look at older topic: Prefilled Tax field on Sales Invoices not as expected for Inventory Sales

@patch, yes thats my point and therefore it would be consistency in Manager to have also two tax codes for each inventory item.

In that case, I now understand, and you clearly understand how to do this. You’ve been doing it.

For the record, much of the discussion in the prior topic, from which I split this thread, is now obsolete because of the change in the tax functionality of Manager last month.

It’s also worth noting that I think @Patch is incorrect about there being two separate tax codes. Neither of us actually knows for sure how the program is coded, but I think there is only one, with contextual decisions made on whether to produce a debit or credit based on the type of transaction.

All that said, it seems this subject has been beaten to death. Your approach is very unconventional. But if Icelandic law requires it, the program accommodates it. So I don’t see that there is any issue.

I would like to go into bat for @Tor’s suggestion. Although I do agree with @Tut that it does not relate to selecting income or expense accounts for inventory items, as these do not relate to tax code accounts, and once these are selected they cannot be changed when entering a transaction.

The selection of a Tax Code or a Tracking Code however, are “pre-fill” settings which are able to be changed in each transaction.

So now that it is possible to have separate Input and Output tax codes it makes the selection of a single tax code for an inventory item a source of errors. That is: If the Output tax code is set for an inventory item then each time a purchase invoice for inventory is entered the prefilled tax code will be incorrect and need to be changed. The changing of the prefilled tax code will be easily overlooked resulting in many errors.

I think that the tax code prefill for inventory should include an option to select tax codes for both sales and purchases.

Errors could possibly be averted by not selecting a prefill for inventory items, but, this will also be a potential for errors as users are often confused about which transaction is an input or an output, which is the very reason for having prefill options.

I think I have used ambiguous terminology

Agree (with the edited quote :slight_smile: )

  • Manager uses tax codes (defined by a UUID) with two sub components eg Vat20%(sales), Vat20%(Purchases).

  • Other accounting programs use two single value tax codes to accomplish the same function eg Vat20%Sales, and Vat20%Purchases

As a result in Manager each time a tax code is applied it is given a user explicitly defined component (eg Vat20%) and a program context implied component (eg Sales invoice -> Sale, or Purchase invoice -> Purchase). The advantage of which is Manager knows the sales component can be offset by the purchase component enabling calculation of the net tax liability. The individual sales or purchase transaction can be revealed by going to: Reports -> Tax summary -> View a report -> click on the Net Sales or Net Purchase links. That screen also displays all 7 cumulative sums for each tax code. (in contrast without linked sales and purchase tax codes other programs can only display the 3 cumulative totals for each tax code). It also means a separate sub component of the tax code is always used for sales vs purchases, so doesn’t need to be manually added.

@Tor I think you will find Managers two part tax codes do encode an equivalent amount of information as the two separate single part tax codes used by other programs, so meet taxation reporting requirements. Changing Manager to use single part tax codes with a separate associated account for each would be a massive change so very unlikely in the foreseeable future Imo

The disadvantage of Managers two part tax code is the program must be designed to unambiguously determine the implicit component of each tax code for each transaction. Which is achieved for “Sales invoices” and “Purchase invoices”.