Processing VAT Invoices

Processing AP invoices with Value Added Tax (VAT) requires a slightly different process than other invoices, as VAT tax is not directly expensed.

Set up the system to track standard ITCs separately from retainage ITCs. For more information, click on one of the following links:

Tracking Retainage Input Tax Credits: Australia

Tracking Retainage Input Tax Credits: Canada

Value Added Tax is paid on goods and services at each stage of production or distribution, and is based on the value added at each stage. The system tracks this tax in GL and it reduces the payment to a taxing authority through an Input Tax Credit (ITC). You do not directly expense VAT.

The following instructions detail how to process VAT invoices in AP.

  1. When you receive an invoice from the vendor, enter the invoice (in AP Transaction Entry, AP Unapproved Invoice Entry, or AP Recurring Invoices) and post the invoice.
  2. Post the payment in AP Payment Posting.
  3. Release retainage using AP Release Retainage.
    Note: If you are tracking retainage ITCs separately, the system debits the ITC retainage account ( Debit GL Retg Account field, HQ Tax Codes) and credits the standard ITC account ( Debit GL Account field, HQ Tax Codes) when you pay the release retainage transaction.
  4. Create an invoice for the taxing authority. This includes two steps:
    1. Create a journal entry in GL Journal Transaction Entry to debit the ITC amount from the tax liability account ( Credit GL Account field, HQ Tax Codes) and credit the ITC amount to the standard ITC account ( Debit GL Account field, HQ Tax Codes).
    2. Create an AP expense transaction for the taxing authority. Reference the tax liability account ( Credit GL Account field, HQ Tax Codes) in the GL account field. When you process the transaction, the system debits the tax liability account and credits the expense payable account ( Expense field, AP Company Parameters, Pay Types Discounts/Report Info tab)
  5. Use AP Payment Posting to post the payment to the taxing authority.