You'll find the main VAT settings under Business Settings. Each of your businesses can be set to use a different VAT scheme.
In the business settings screen you can set the scheme, which affects how Easy Books accounts for VAT on your returns. The schemes are described briefly below, and by way of a disclaimer, you should check carefully that your business is using one of the schemes below.
You should also set the date for the next VAT period end, and the number of months in each period. Easy Books automatically updates the period end for you when you file a return, so you shouldn't need to change any of these settings again.
You can set the name of your scheme (for example GST, IVA and so on). This affects the whole app, and the report output. However, your account names are not changed, so you may also like to edit the name of each VAT account as well. To do this, keep reading!
Easy Books handles the following Value Added Tax (Goods and Services Tax) schemes:
* Standard Scheme
* Cash Scheme
* Cash Scheme (sales only)
* Flat Rate (Standard)
* Flat Rate (Cash)
The difference between the standard and cash methods lies in the effective date used to record the sale or purchase. In the standard scheme, your business becomes liable to pay the sales tax you have collected from your customers on the date of invoice (which may not be the same date that you receive the payment from the customer).
If the business runs the Cash Accounting VAT scheme, any VAT owed is adjusted by unpaid balances on customer and supplier accounts. This means the business does not need to pay VAT on its sales invoices to the tax office until the business has received payment from its customers. Similarly, if the business receives an invoice for purchases, it cannot claim back the VAT amount until the payment has been made to the supplier. Easy Books can compute the adjustments if you have entered the sales and purchase invoices.
In Ireland it is possible to run a cash based scheme for sales, but a standard scheme applies for purchases. This is the "Cash Scheme (sales only)" method in Easy Books. This means any purchases made allow you to reclaim the tax paid on the date of purchase, even if you haven't yet paid. The scheme still allows you to defer the tax you owe on any unpaid sales invoices.
Businesses using the flat rate scheme are not able to claim back any input tax (tax on purchases). They still add VAT to sales, and record the amount of VAT charged to customers. The tax due is based on a percentage of the gross income (including the tax charged).
Although tax cannot be claimed on normal purchases, it can be claimed on purchases of large assets. You will need to check the tax rules in your own country to find out what the value limits are. To cater for these purchases, Easy Books creates a new VAT account called "Vat (large assets)". For qualifying purchases, you should select this account for the purchase VAT. Easy Books will adjust the tax owed using this account in the same way as the standard scheme adjusts for purchase VAT.
When a VAT return is filed, Easy Books creates a new income account for the surplus VAT amount after paying your flat rate VAT. It also creates a new expense account for any VAT you have entered on purchases that cannot be reclaimed. You can (or may be able to) reclaim VAT on large assets, and these should be assigned using the "Vat (large assets)" account.
It is possible to mix the flat rate scheme with a cash accounting method. In this case, the sales are adjusted by unpaid balances on the customer accounts, then after the adjustments are applied, the app calculates the flat rate on the adjusted gross income. Likewise, for purchases of large assets using the "Vat (large assets)" account, these are adjusted using the balances on supplier accounts.
If you just need to set the standard rate, you can do this for both sales and purchases by changing the amount shown in the business settings under VAT. This is simply to save time, and all it does (behind the scenes) is set the percentage rate the same for both "Vat sale standard" and "Vat purchase standard".
To set the percentage rate of tax for each VAT account individually, find the VAT account in the main accounts list. Then double-click to show the Account Settings. Each VAT account can be given its own tax rate, which is used to speed up data entry by pre-setting the VAT amount based on the sale or purchase amount. If the rate is not set, or is incorrect, it just means you will always need to manually set the VAT amount. Remember to set the rate for both the sales and purchases!
If you need more VAT accounts, feel free to add more, putting them in the correct category (either "Tax rate on sale" or "Tax rate on purchase"). For any accounts you add, you can also set the percentage rate, and Easy Books will keep track of the VAT assigned to this account. It will also appear on the supporting calculations section of your VAT return.
You should also set the normal percentage rate as indicated in the screenshot. This is useful because Easy Books will automatically set the amount of tax for you using this rate.
The balances of your VAT accounts will gradually increase over time, and once your VAT return becomes due, you can use Easy Books to calculate the overall tax amount you owe. This will zero the individual VAT accounts, moving the outstanding balance over into the VAT due account. To find out how to perform the VAT return, see VAT report under the reports section.