Configuring your product for your business V.A.T. reporting is introduced in V.A.T. Rates & Default V.A.T. Codes.
Your product is installed with the default V.A.T. Code 1 set at 20.0%
If legislation changes the standard rate for V.A.T., you need to reflect this in the software in a way that makes it clear which transactions are processed at which rate during the transition V.A.T. reporting periods.
We recommend one of the following two methods. Which you use is your choice.
METHOD 1 – USE A NEW CODE FOR THE NEW V.A.T. RATE
- Use a new Code for the new rate, say V.A.T. Code 3, leaving V.A.T. Code 1 at 20.0%.
- Continue to use V.A.T. Code 1 until the changeover date and then carry out the following actions:
- If using the Product or Stock file, change the default V.A.T. Code for each Product/Service or Assembly to V.A.T. Code 3 unless the product/service has another default such as zero rated or exempt; in which case it does not need to be changed.
- If you have default V.A.T. Codes for individual Sales and Purchase ledger accounts, ensure that these are changed to V.A.T. Code 3 unless they have another default such as zero rated or exempt; in which case it does not need to be changed.
- Check the default sales V.A.T. Code in Sales Ledger parameters and change to V.A.T. Code 3 if your usual output supplies are subject to the standard rate of V.A.T.
- Re-enter or amend any sales orders for standard-rated goods to be delivered and invoiced after the changeover date to V.A.T. Code 3. You will need to co-ordinate with your business customers to resolve any discrepancies.
- Check the default purchase V.A.T. Code in Purchase Ledger parameters and change to V.A.T. Code 3 if your usual input supplies are subject to the standard rate of V.A.T.
- Re-enter or amend any purchase orders for standard-rated goods to be received and invoiced after the changeover date to V.A.T. Code 3. This will depend on and will need to agree with the purchase invoice subsequently received from your supplier.
- You will need to co-ordinate with your business suppliers to resolve any discrepancies. It may be necessary to cancel existing outstanding orders and re-issue them with the new VAT code and VAT amount.
- Check the default Cash Book V.A.T. code in the Nominal Ledger parameters and change if necessary.
- Finally check your Stationery designs. If there is mention of the V.A.T. rate entered as a text field in the document design then you should change this accordingly.
This method might be more appropriate for your business if the rate change is temporary.
METHOD 2 – CHANGE EXISTING DEFAULT V.A.T. CODE TO THE NEW RATE AND ADD NEW V.A.T. CODE FOR 20.0% RATE
For all transactions after the changeover date:
– Change the existing V.A.T. Code 1 to the new rate
– Set up V.A.T. Code 3 as 20.0%
- Check your Stationery designs. If there is mention of the V.A.T. rate entered as a text field in the document design then you should change this accordingly.
This method might be more appropriate for your business if the rate change is permanent.
N.B. With either method, if you are maintaining V.A.T.-inclusive selling prices in the Product/Stock file (check Product/Stock parameters), in order to pass on the effect of the rate change to your customers, you must change the selling price accordingly, as the V.A.T. element is calculated as a percentage of the selling price.
Take extra care with credit notes issued against invoices issued at the old rate – take advice if necessary – the usual rule is – when is the point of supply?
This advice is not meant to be a definitive or exhaustive guide. Prelude Software Ltd accepts no liability for any time, costs or expenses you may incur in effecting the change of standard rate V.A.T. for your business or in the resolution of any disputes you may have with your customers or suppliers.
If you have any doubt, you should consult your bookkeeper, accountant or Prelude supplier.