# VAT not correct

Hi,

VAT 7%.

Please refer to the sample above.

My customer pays me a deposit of 310,000 inclusive of Vat 7%. ( Vat 7% = 20,280.37).
Therefore, 310,000 - 20,280.37 = 289,719.63
Instead of showing 289,719.63, it shows 310,000 after Total Amount in the Purchase Invoice.
Shouldn’t the purchase invoice Sub-total amount less 289,719.63?
Sub-total 978,672 - 289,719.63 = 688,952.37
Therefore 688,952.37 * VAT 7% = 48,226.66
Then the purchase invoice should display Vat 7% 48,226.66 and VAT 7% deposits 20,280.37
The purchase invoice looks confusing when customer pays me deposits upfront which include 7% VAT as shown below.

Your first error was to use a purchase invoice. A purchase invoice records an incoming sales invoice from a supplier. Customers never appear on purchase invoices. They get sales invoices. This matters greatly, because the effects of all accounting transactions are reversed for purchase invoices versus sales invoices.

The second error was to apply the VAT 7% tax code to both the receipt for the deposit and the invoice. Even if you had correctly used a sales invoice, this would be incorrect. In effect, you have charged the customer twice for the same VAT. The tax code should only be applied to one or the other.

In most jurisdictions, the deposit is not a taxable sale. So tax is applied on the sales invoice only. The receipt only records your receipt of money held on your customer’s account for application to a future sales invoice.

In the few jurisdictions where a deposit is considered a taxable sale, the tax is not applied to the portion of the sale covered by the deposit, but only the remainder. This requires splitting one or more line items into two parts, one taxed and the other not.

A similar situation applies when you pay a deposit to a supplier and a purchase invoice is involved.

I did not check all your math because of your other errors, but it looks like you may also be misunderstanding tax-inclusive pricing.

Hi Tut,
I pay the supplier advance payment of 310,000 inclusive 7% VAT using Purchase Invoice. Wrote wrongly. My apologies.

Hi Tut,

In my country, Advance payment to my supplier is required to deduct VAT 7%. As mentioned by you “The second error was to apply the VAT 7% tax code to both the receipt for the deposit and the invoice” How do I account for advance payment VAT 7% in Manager.IO so that the figures reflect correctly in the purchase invoice and not repeating the second error. The payment for the advance payment must show 7% VAT too.

Thanks

Then the second Guide linked to previously is the one to read. If VAT applies on the deposit because it is considered partial payment for specific goods or services, just apply the tax code to the relevant line item on the purchase invoice. If the purchase is for inventory items, edit the unit price to reflect only the part you paying for with the deposit. When you enter the payment (not receipt) form for the deposit, apply no tax code. Your payment is now discharging your obligation to the supplier for the purchase invoice, not recording an additional taxable purchase.

When you pay for the balance of the goods or services, enter another purchase invoice for what remains. Adjust unit prices to reflect the balance due. Apply the tax code here, too. Again, when you make payment against the purchase invoice, do not apply any tax code.