The Accounts Payable system has the ability for the system to handle multiple VAT/GST and withholding taxes on each transaction. For example a single Accounts Payable transaction can handle a local, state, and a federal tax on a single transaction in addition to multiple withholding taxes.
Multiple Accounts Payable tax codes (VAT/GST & Withholding) can be linked to a tax group. The tax groups would then be linked to a tax category. Each creditor will be linked to a specific tax category.
The tax categories define the specific tax registration status of the individual creditors by applying the appropriate rules to handle each classification. There can be multiple tax and withholding rates and each can be based on gross or net. There is also the ability to include tax breaks based on absolute or differential.
The Accounts Payable module identifies the tax status of creditors and subsequently calculates and verifies the tax components of payable invoices. These tax definitions within the Accounts Payable module are used by the Royalty module as well as the Warranty & Service module when producing Accounts Payable invoices for payments.
Tax movements are calculated and tracked and reporting of these movements is provided to substantiate the figures resulting in the General Ledger. These GL figures are eventually transcribed onto the Business Activity Statement (BAS) for reporting to the Australian Tax Office (ATO) for Australian creditors.
The requirements to handle tax in Accounts Payable are as follows.
- Classify the creditors in terms of their tax registration status.
- Validate and store the creditors tax registration number (ABN – in Australia).
- Accept and verify the tax component included in AP invoices.
- Provide GL postings to record the tax input credits included in the AP invoices.
- Report the tax paid within the AP module, broken down by registration status.
The calculation of tax depends on the creditor’s tax classification. The tax classification is determined by the creditors supplying their tax registration number and tax registration status. Creditors invoices must reflect their tax status by using the heading TAX INVOICE and usually by supplying their Tax registration number on documentation.
Creditor’s tax classifications will probably fall into one of the following categories.
- Tax category for miscellaneous creditors
- Tax category for tax registration number registered
- Hobbyist tax category
- No tax registration number tax category
- No tax registration number tax category (local withhold below threshold)
- Overseas withholding tax category
- Overseas imports no deferment tax category
- Overseas imports deferred tax category
Foreign currency tables can be maintained monthly with one table for all functions for all companies or these can be set up for various functions average and month end and for individual companies. Each time a payment is processed for a foreign currency the system records the transaction both in the foreign currency and at the base currency, using the current exchange rate. Any variances between the exchange rates at payment time and the exchange rates used during invoice entry are posted to the Exchange gains and losses account. Outstanding transactions in both AP and AR can be revalued at the latest exchange rate.
If the GL account is flagged as a Balance Sheet account, the system converts to the foreign currency using the End of month rate. If the GL account is a Profit & Loss account, the system converts to the foreign currency using the average rate.
