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VAT Codes in Sales Transactions

This page describes how VAT Codes will be chosen and offered as defaults in sales transactions, including Quotations, Sales Orders and Sales Invoices.

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Whenever you sell an Item, a VAT Code will determine the rate at which VAT will be charged on the Item and the Output VAT Account that will be credited with the VAT value. Each time you sell an Item (i.e. whenever you specify an Item in a row in an Invoice, Order, Quotation or other sales transaction), a VAT Code for that sale will be brought in to the V-Cd field on flip B of the sales transaction row. That VAT Code will be chosen as follows:

1. The VAT Code in the Delivery Address specified in the sales transaction (on the 'Del. Address' card) will be used.
   

2. The Sales VAT Code specified in the Contact record for the Customer will be used. Usually, you would only specify a Sales VAT Code for an individual Delivery Address or Customer if for some reason your usual VAT accounting method does not apply to them.
   

3. If the sales transaction has a Price List, the VAT Code will be taken from the appropriate row for the Item or Item Group in that Price List.
   

4. The VAT Code specified in the Item record will be used.
   

5. The VAT Code specified in the Item Group to which the Item belongs will be used.
   

6. The VAT Code specified on the 'Sales' card in the Account Usage S/L setting will be used.

In the cases of points 4-6, the choice of VAT Code will depend on the VAT Zone of the Customer, which you should specify on the 'Company' card of the Contact record for the Customer. Customers in the "Inside EU" and "Outside EU" Zones will not be charged VAT, irrespective of the VAT Code specified in the transaction row. If you want to charge VAT to such Customers, place them in the Inside EU (Post VAT)" and "Outside EU (Post VAT)" Zones.

You will be able to override the choice of VAT Code in an individual Order or Invoice row if necessary, providing you are not using the VAT Code Control option on the 'VAT / Tax' card in the Account Usage S/L setting. If you are using the VAT Code Control option, a check will be made that the VAT Code specified in a transaction row is the same as the one specified for the Sales Account in the same row. If the VAT Codes don't match, you will not be able to save the transaction.

Using the VAT Code Control option means that you will probably need to specify different Sales Accounts for Customers in the Inside EU and Outside EU Zones. This is because you will probably need to use different (zero-rated) VAT Codes with these Customers, but you can only specify one VAT Code in an Account record. Therefore, you will need separate Sales Accounts for each Zone, containing appropriate VAT Codes.

By default, the same VAT Codes will be used in both Invoices and Credit Notes. If you would like to use different VAT Codes in Credit Notes, select the Use Credit Sales Accounts option on the 'Debtors' card of the Account Usage S/L setting. VAT Codes in Credit Notes will then be chosen as follows:

1. They will be taken from the 'Credit A/C' card of the appropriate Item Group record.
   

2. They will be taken from the 'Credit' card in the Account Usage S/L setting.

If you would like to use the same VAT Codes in Credit Notes but have them post to different Output VAT Accounts, you can specify those Output VAT Accounts on flip D in the VAT Codes setting. There is no need to select the Use Credit Sales Accounts option in this case.

Please refer here for more details about VAT Codes.

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