Changes to the Value Added Tax (VAT) Act in June 2020 reduced the rate to 9% for restaurants and catering, hotel and camping accommodation, books, teaching aids and baby food and nappies. The change entered into force on 1 July and will apply until 31 December 2021.
In order to meet the needs of our customers who offer this type of goods or services, as well as our customers with international and multi-channel sales, the Prim.IO system had to undergo some changes. These relate to the tax settings by category of goods or services, firstly to reflect changes in the law, and secondly to allow goods or services with different tax rates to be sold and bought together. The new settings must be configured once for sales, orders and related documents to work under the new rules.
Let’s use a current example – the 9% VAT on the supply of books on physical media or made electronically. Imagine that, in addition to a book, the customer wants you to sell them a laptop. This requires the introduction of one sale and the issue of all subsequent documents (and financial!) with two different taxes.
What and how should be set up in Prim.IO?
Step #1
Check if you have already entered a tax type from Finance > Finance Settings > Taxes, Tax Types tab. In our example, this is VAT.
Step #2
A new tax rate type is created from the second tab in the same Finance > Finance Settings > Taxes interface. We will create a “Standard” tax rate to use for 20% VAT, a “Preferential” tax rate for 9% VAT, and an “Exempt” tax rate for 0% VAT. Note that when the rates are created, they do not specify what the value of the tax is, they only define it.
Step #3
The created tax rates are linked to the item categories from Logistics > Warehouse and Logistics Settings > Categories and Features. For example, the category “Books” will have a preferential tax rate (for 9% VAT) and the category “Laptops” will have a standard tax rate (for 20% VAT).
In the Tax Rate column you can see what rates are assigned to each group.
Step #4
Define tax transactions from Finance > Finance settings > Taxes, Tax transactions tab. In case you will use the same tax transactions when working in the system, skip this step.
Step #5
In the Finance > Finance Settings > Tax Rate Settings menu you need to specify what the tax value will be in each tax transaction. For example, in a “Sale outside the EU” transaction, you can define that the categories of items or services with standard tax rate will be sold with 66% VAT. Tax values may vary according to your need.
If we are to use the example at the beginning, then in a tax transaction “Sales- 20% VAT taxable supplies”, you need to “pull” via drag and drop function on the right side the “Standard” tax rate to the transaction as well as the “Preferential” tax rate. You then double-click on the rate to tell the system what value the VAT will have when you have a sale with a tax transaction “Sales – taxable supplies with 20% VAT” and an item in a standard rate category. Similarly, if you put 9 in the preferential tax rate column for a tax transaction “Sales – taxable supplies with 20% VAT” and your item is in a category with a set preferential rate, your VAT will be 9%.
Step #6
Tax transactions, on the other hand, must be bound to a sale type, which will automatically calculate the VAT values according to the specified relationships between transactions/models/categories. Sales types are created from P&S > Settings > Sales types.
Note that some settings are not new, they are just for checking existing items. When entering a new category of items/services or changing the tax value of a category, we advise going through all the steps.