Tax from inventory write-offs not appearing in some reports

When I file my VAT returns, there are three main categories I need to detail:

  1. Declaration of output tax (sales)
  2. Change of use of goods (such as writing off inventory items as business expenses)
  3. Input tax claim (purchases, with imported goods being a sub category of this)

Several of the reports available under Tax Codes offer useful ways of getting what I need for categories 1 and 3, but it takes some effort to separate out the information that I need for category 2, usually involving some manual arithmetic once I’ve picked out the inventory write-offs from the sales invoices. I’m worried that my current methods are more prone to error on my part, as well as being more time-consuming.

So, I’m thinking of creating a new custom tax code with the same rate as the standard VAT, and using this for all the transactions that would fall under category 2 above. It would make it much quicker and easier for me find the information I need for my returns. The 100% “VAT on import” code I use makes it easy to see the details of my imports, and something like a “VAT 14.5% change of use of goods” code would similarly help me separate these transactions from regular sales.

So, my question is, is this a reasonable use of a custom tax code, and is there any reason I shouldn’t be doing this? I’m wondering if there could be implications beyond what I’m seeing in my reports.

I have discovered another problem. While trying to implement my plan above as a test, I noticed that VAT being applied through inventory write-offs is not being recorded as VAT payable:

Perhaps the program is functioning as designed and I’m not using the tax codes correctly, or perhaps our VAT requirements here (Zimbabwe) are different from most other jurisdictions. Either way, I would welcome some advice about how I can get a report similar to the above showing the results as labelled in orange, whether that’s through different use of tax codes, custom VAT worksheets, or changing the inventory write-offs to another transaction type (sales invoices or journal entries?).

Here is the edit screen for my “VAT 14.5% change of use of goods” custom tax code that I applied to all inventory write-offs:

image

I have edited the topic title to better reflect the focus of my problem as it has changed with this post.

Upon drilling down on the VAT payable account on the Summary page, I see that the tax from the inventory write-offs is in fact posting to that account. However, I still don’t understand why it’s not appearing in the Tax Summary report as shown in the above post. The same is happening in the Tax Transactions report, where there are figures in the column for Total Sales but not Tax on Sales for the inventory write-offs. Both of these reports would be much more useful to me if they showed these figures. Could this be a bug, or is there something I’m not understanding?

Go back to fundamentals. Write-offs are not taxable transactions.

OK. Why are tax codes selectable in inventory write-offs? When would one use them here?

Drilling down on my VAT payable account from the Summary page shows they seem to be posting to the account appropriately (though without anything in the description and tax columns):

And they seem to show up correctly in the Tax Reconciliation report:

If an inventory write-off is the wrong way of accounting for these transactions, what method would you suggest?

When doing my first VAT returns it did seem strange to me that I would have to pay VAT on items going from inventory on hand into business expense accounts, but my accountant confirmed that this is necessary:

  1. If I buy goods or services and allocate them directly to the appropriate expense account, I can claim the VAT as input VAT? [Accountant: yes]
  2. If I buy goods and enter them into inventory, and then use them later for shop use, I can claim the VAT as input VAT on the first purchase but need to pay output VAT (on cost price) when they move from inventory to the appropriate expense account? [Accountant: yes]
  3. So, if the above are both true, then when I buy something that I know I’ll eventually use in the shop, I shouldn’t enter it into the inventory at all, but should rather allocate it directly to the appropriate expense account? [Accountant: yes]