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VAT Amount in sales Invoice as a line

Posted on by 557

Hello! 

I need your advice on how to create service item named 'VAT Collected' which can be used in invoices where the entire amount will be calculated as VAT. 

We have the following scenario in case of a customer. 

Invoice 1 Line 1: Item 'ABC'   QTY 100    Unit Price 100    VAT%  0    TOTAL 10,000

Invoice 2 Line 2: Item 'VAT Collected'     QTY  1     Unit Price 250     VAT%  5        TOTAL 250

We have sold item1 at 0% VAT as its under a 0% VAT contract. They have already paid us in advance a total of 10,000. And this includes our service charge of 5,000.

However, legally we have to add 5% VAT on our service charge (of 5,000) which is 250 (which the customer is liable to pay). So we would like to invoice the customer with only the VAT amount of 250. (We cannot include the service charge in the invoice since it was already included in our earlier invoice 1)

Is it possible to create a service item as 'VAT Collected' and whatever amount is put for this item is directly posted as VAT at 5%? 

Other info: 

We are using AX 2009 and our VAT setup is a combination of SalesTaxGroup and ItemSalesTaxGroup. We use 0%, 5% and Exempt as SalesTaxCodes for different scenarios. 

In case of journals, we do something similar... When we need to post a VAT amount without an origin amount we select the SalesTaxCode = 5% in the journal line and the system takes the entire amount as VAT amount under salestaxcode 5%, which means the system treats the entire amount as 5% VAT.  

Please advice if this can be done in a sales invoice. 

  • oldman.logan Profile Picture
    oldman.logan 557 on at
    RE: VAT Amount in sales Invoice as a line

    Ok so this is great and what we intended to do. Yes the client initially said they can't have two lines. Invoices are usually uploaded into their SAP login account for vendors. We make such uploads corresponding to the PO's that they have issued. SO when an invoice is uploaded for a particular PO, they already have the template with the same line as in the PO. All we can do is enter the invoice amount against the item name line and they have already mentioned 0% as VAT in the template which we can't change. Sure we can upload a copy of the invoice but they compute on the basis of the entered value. We are still in negotiation with them regarding this. We cannot add just the total. The local vat regulation insists that we enter the origin amount in the invoice for which the VAT is calculated. Hopefully the discussion with customer will bring something positive.

  • Suggested answer
    ZvikaR Profile Picture
    ZvikaR 61 on at
    RE: VAT Amount in sales Invoice as a line

    Thanks for clarifying - that completely changes the analysis of the situation.

    For the "product" you have a situation of pass-through payment. your client buys directly from the vendor (the invoice and shipping document of the supplier is to them) and you are merely collecting money from them and passing to the supplier - such transaction is typically considered to be "out of scope" for VAT purposes.

    The correct way to record that would be

    Line 1: 6000, with not tax groups/item tax group OR selections that lead to posting into a "out of scope" tax code.

    Line 2: 4000 (your commission) with 5% VAT

    This will trigger the correct posting into the GL, the VAT sub-ledger and the vendor sub-ledger and will be simple to understand and auditable.

    You seem to imply your client does not want to see 2 lines on the invoice?

    IF that the case probably the easiest way is to create a custom layout for the invoice that "totals" the line together, and print just the total lines, total tax, etc.

  • oldman.logan Profile Picture
    oldman.logan 557 on at
    RE: VAT Amount in sales Invoice as a line

    [quote user="Zvika Rimalt"]

    What is the reason you are trying to put both the prepayment and the charge for services on the same invoice?

    typically there is a prepayment, and some time on a later date the service is rendered and an invoice is raised?

    From accounting point of view it probably makes sense to separate "prepayment" invoice (which is not really an invoice since it does not record revenue - even if your customer wants to receive a "paper document"

    In addition, when using charges the way your describe looking at a sales order/invoice might feel confusing - since it will not be obvious there is a charge attached offsetting the amount.

    [/quote]

    I'm sorry I made a mistake. By prepayment, I meant to say, we are making the payment to supplier in advance. The customer does the customs clearance, pays the input VAT and takes the shipment. Customer pays us after 30 days. So in this case, we invoice the customer for the total shipment cost (which we paid in advance to supplier) and our margin. Since the customer has paid the input VAT on the shipment value at customs (based on supplier's commercial invoice), input VAT is already accounted for and since the shipment is in their name, we are not liable to pay any VAT on it. Then we will invoice the customer with the shipment value plus our margin. This total is the same as the customer PO in the beginning of the order. 

    However, we are liable to pay VAT to the government on the margin amount. So we need to make an invoice to the customer with the shipment value with no VAT and margin with VAT. 

    You might be wondering, if the customer gets to know the real value of the shipment in this case as they are paying the input VAT on the commercial invoice (which is the cost of the material). Then why bother with us at all? Why doesn't the customer buy this from the supplier directly.

    - The customer gets 30 days or 60 days credit from us. Most overseas suppliers need advance payments. So we pay the supplier in advance and give 30 / 60 days to customer. 

    - The customer is a state owned corporation in the country. They like to outsource the process of purchasing the item so that they can avoid the hassle of the negotiation, meeting specifications, shipping documents etc... And if something goes wrong, if the supplier defaults or if the item is not matching the specifications, they can always reject the material and dump it on us to handle it. 

    - There is a regulation that needs them to buy required products through local vendors in the country, unless in urgent cases.  

  • Suggested answer
    ZvikaR Profile Picture
    ZvikaR 61 on at
    RE: VAT Amount in sales Invoice as a line

    What is the reason you are trying to put both the prepayment and the charge for services on the same invoice?

    typically there is a prepayment, and some time on a later date the service is rendered and an invoice is raised?

    From accounting point of view it probably makes sense to separate "prepayment" invoice (which is not really an invoice since it does not record revenue - even if your customer wants to receive a "paper document"

    In addition, when using charges the way your describe looking at a sales order/invoice might feel confusing - since it will not be obvious there is a charge attached offsetting the amount.

  • oldman.logan Profile Picture
    oldman.logan 557 on at
    RE: VAT Amount in sales Invoice as a line

    [quote user="Zvika Rimalt"]

    It is somehow possible, but definitely not recommended.

    Sales Order and Free Text Invoice do not allow you to post directly into a VAT code - hence you will find yourself posting directly into a ledger account, and this will mess up your ability to use the out of the box reporting out of the Tax sub-ledger.

    I believe your whole accounting in this case is not correct.

    The first "invoice" is not really an invoice, since it is prepayment. it should NOT be posted with 0% tax, as it implies a sales of 10K with 0%.

    Instead, the first transaction should be posting with NO TAX at all.

    The second invoice, the "real" invoice, is when the sale is actually record.

    It should include:

    1. line 1: negative line for 10000 (reverse the pre-payment)

    2. line 2: positive line for invoiced 5000 product, 0% tax

    3. line 3: posting line for invoiced 5000 service, 5% tax.

    If your laws in Saudi are in any way similar to VAT laws in the EU or Canada, your current accounting does not meet common standards.

    [/quote]

    Thanks for your reply. We are considering the scenario as follows.

    Since the customer needs an invoice for the prepayment they made, we will be generating an invoice with NO VAT, we will add a sales tax code as "NO VAT" or "OUT OF SCOPE VAT" and use it for the first line of the invoice. 

    The second line will show our service charge and 5% VAT on it as normal. 

    Since in this case the first line amount (prepayment) includes the service charge (they pay as per their PO), we will add miscellaneous charge and remove 100% of the service charge at line 2. So that the total will be only the VAT for the service charge and the total invoice will be the prepayment amount plus the vat on the service charge. 

    Is this a good idea? 

  • oldman.logan Profile Picture
    oldman.logan 557 on at
    RE: VAT Amount in sales Invoice as a line

    [quote user="Khaled Alloud"]

    In general you can do the scenario above; however, you need to be careful for your transaction posting type and Sales Tax settlement process. If you add the Vat amount as an item it will not be added in the Tax settlement.

    Try a full scenario on a Test env. and check the consequences financially.

    [/quote]

    We will be adding the origin amount as item unit cost and letting AX calculate VAT for the item as usual. 

  • Suggested answer
    ZvikaR Profile Picture
    ZvikaR 61 on at
    RE: VAT Amount in sales Invoice as a line

    It is somehow possible, but definitely not recommended.

    Sales Order and Free Text Invoice do not allow you to post directly into a VAT code - hence you will find yourself posting directly into a ledger account, and this will mess up your ability to use the out of the box reporting out of the Tax sub-ledger.

    I believe your whole accounting in this case is not correct.

    The first "invoice" is not really an invoice, since it is prepayment. it should NOT be posted with 0% tax, as it implies a sales of 10K with 0%.

    Instead, the first transaction should be posting with NO TAX at all.

    The second invoice, the "real" invoice, is when the sale is actually record.

    It should include:

    1. line 1: negative line for 10000 (reverse the pre-payment)

    2. line 2: positive line for invoiced 5000 product, 0% tax

    3. line 3: posting line for invoiced 5000 service, 5% tax.

    If your laws in Saudi are in any way similar to VAT laws in the EU or Canada, your current accounting does not meet common standards.

  • Khaled Alloud Profile Picture
    Khaled Alloud 3,656 on at
    RE: VAT Amount in sales Invoice as a line

    In general you can do the scenario above; however, you need to be careful for your transaction posting type and Sales Tax settlement process. If you add the Vat amount as an item it will not be added in the Tax settlement.

    Try a full scenario on a Test env. and check the consequences financially.

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