VAT Recoverability

Determination calculates both Input and Output VAT for GL posting and reporting to tax authorities. The calculation includes logic to account for reduced recoverability associated with either a product or a vendor. In most cases, reduced recoverability must be posted to an expense account for the amount of Input VAT that is not recoverable. The remainder is posted to the tax-recoverable account.

Split Tax Results

Determination supports per-company configuration that determines if a tax result can be split into recoverable and non-recoverable amounts when:

  • The company role is Buyer.
  • The Input Recovery Percent is less than 100%.
  • The tax rate is a percentage rather than a fee.
  • The tax direction is Input.

If a tax result is split (the default behavior), two <TAX> blocks are returned: one for the recoverable amount and one for the non-recoverable amount. The data returned in each block will be similar, with differences described below.

The recoverable tax block includes:

  • A taxable basis calculated using the input recovery percent specified by the rule. For example, if the input recovery percent is 25% and the gross amount is 500 euros, the taxable basis will be 125 euros. If input recovery amount is provided instead, Determination converts the amount to a percentage before determining the taxable basis.
  • A tax direction of I (Input).
  • The tax type used in the calculation.

The non-recoverable tax block includes:

  • A taxable basis calculated using the input recovery percent specified by the rule. Given an expense of 500 euros and a recovery percentage of 25%, the desired outcome would be to charge the expense account with 75% of the tax amount and charge the input tax account with 25% of the tax amount. At a tax rate of 20%, the tax amount would be 100 euros, of which 75 euros would be charged to expense and 25 euros would be charged to the input tax account.
  • A tax direction of I (Input).
  • A tax type of NR (Non-Recoverable).
  • The message MESSAGE_INPUT_RECOVERY_PERCENT, including a description of the authority and its input recovery percentage.

If a tax result is not split, the entire amount (recoverable and non-recoverable amounts) are contained in a single <TAX> block, with no distinction between the two. Your company will need to use a reconciliation process to manually account for non-recoverable amounts.

You must configure recoverability in a custom rule or input data (by percentage) so that Determination will split the tax amounts into recoverable and non-recoverable portions to assist in accounting and reporting.

Configuring the Split Result

You can configure Determination to return separate recoverable and non-recoverable <TAX> blocks:

  1. Navigate to the System > Companies > List page.
  2. Select the desired company.
  3. Click the Options tab.
  4. Set the Post VAT Non-Recoverable Amount option to Y.
  5. Repeat as necessary for other companies.