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VAT declarations are a must for all companies (except those exempt from VAT). In order to communicate the amounts of VAT collected, it is necessary to go through the famous VAT declaration.
Let’s review a few basic principles regardingVAT reporting.
VAT is an indirect tax paid by consumers. With the exception of a few special schemes, businesses do not pay VAT but collect it on behalf of the government. Consequently:
- You pay VAT to your suppliers (= input VAT),- You charge it to your customers (= output VAT),- You recover it when you have a VAT credit (input VAT > output VAT).- You pay VAT to the government when output VAT is greater than input VAT
This means you need to track your VAT flows. On a monthly, quarterly, or annual basis, you must calculate the amounts of VAT paid (deductible) and VAT charged (collected or billed to your customers) and report them on your VAT return.
It is precisely the difference between these two VAT amounts that will be taxed at the applicable VAT rate. Hence the name “value-added” tax.
Finally, an important point:
- To calculate the VAT you need to report, your accounting records must be up to date up to the end of the period for which you are filing the VAT return. - To determine the VAT amounts to report on your VAT return, you must first determine whether your business requires you to collect VAT on your receipts (in most cases) or on your debits.
This is an important distinction that will determine when you have to declare these sums on your VAT return.
And in KAFINEA? #
Naturally, KAFINEA meets the legal obligation to track your VAT flows, and enables you to generate a VAT return in just a few clicks, all in an extremely simple way. Most actions are automated.
When documents are entered (customer invoices, supplier invoice ), accounting entries, including input and output VAT, are generated automatically. To find out more, please read our dedicated article: How automatic accounting entry generation works.
Thanks to a few additional settings, you can define :
- The method of collecting VAT (cash basis or accrual basis) – The various VAT accounts corresponding to the different applicable rates
With just a few clicks, you'll be able to generate a VAT return for each reporting period, and find out how much you need to declare to the government.
Settings #
- The VAT collection method
First, you need to configure the VAT collection method. The options are available under the following path: Finance > Accounting > Settings > VAT on Receipts.
The default collection mode is VAT on debits. Use the checkbox to switch to VAT on receipts. You will also need to set up transitory accounts to enable automated calculations to run smoothly.
**Tip**: You can change your VAT collection method at any time; however, to simplify your interactions with the tax authorities, we recommend that you only make this change at the beginning of the fiscal year.
Good to know:
VAT on receipts: VAT is payable on the day of payment for the service (receipt). This method is often used for the provision of services.
** VAT on sales:** VAT is due on the date the invoice is issued. This method is primarily used in the delivery of goods
- The different VAT accounts
Generally speaking, in accounting, it is preferable to use several output VAT accounts when the company makes sales subject to several different VAT rates.
In KAFINEA, this method is applied to both output and input VAT, for greater simplicity when generating the VAT return.
Configuration is performed using strategies—a feature unique to KAFINEA—via the following path: Finance > Accounting > Settings > Account Number Assignment Strategy for Products and Services.
To define output tax accounts, follow the steps below:
- Select: ***Sales Tax Accounts***- Enter a descriptive name, such as "Collected VAT 20%" - Select the tax corresponding to the rate: in our example, 20% - Select the context: in our example, sales - Select the account number: in our example, a subaccount of the collected VAT account 44571, such as 445712
The same steps are to be repeated for deductible VAT accounts:
- Select: Accounts for purchase taxes–– Enter a descriptive name, such as Input Tax 20% – Select the tax corresponding to the rate: in our example, 20% – Select the context: in our example, purchases – Select the account number: in our example, a subaccount of the input tax account 44566, such as 445662
All these steps must be repeated as many times as there are VAT rates used for your activity, in each sales or purchasing context.
**Important**: The VAT strategies you just created will be used in the product strategies for the VAT option: Any rate.
Generate a VAT return
Once the reporting period has ended and your accounting records are up to date with the information you have on hand, you can generate a VAT return in just a few clicks. To do so, go to the reporting tool: Finance > Accounting > VAT Return & Others
- Add a record - Select a start date and an end date for the reporting period you are interested in (month, quarter, year) - Review the suggested amounts and adjust them if necessary in the "Report"sections -Save
On registration, all accounting entries corresponding to your VAT return will be automatically recorded on the last day of the selected period. Autogenerated entries can be viewed in the 'Entries' tab of the declaration.
Good to know: When creating the return, the *VAT Overview* section provides a detailed breakdown of the amounts for each VAT account in your chart of accounts. In the“Return”sections, some of these amounts are aggregated to match the amounts to be reported on the official government forms.
Important : You cannot modify a VAT return. The figures provided would reflect the journal entries automatically generated when the return was created. If, after saving but before submitting the amounts to the tax authorities, you wish to adjust your return, you must delete it and create a new one. Deleting the entry will also delete the automatically generated journal entries, so the figures provided will be consistent with the selected period.