Book tax to the ledger

Tax reaches the ledger when a document posts. Quotations and orders show tax but book nothing; an invoice, a bill, a credit note, a debit note, a till sale and a rep app invoice each book their tax in the same journal entry as the rest of the document.

Document	Tax books to
Customer invoice, till sale, rep app invoice	Tax payable, credited
Customer credit note	Tax payable, debited
Vendor bill	Tax receivable, debited
Vendor debit note	Tax receivable, credited
Vendor bill under a reverse-charge code	Tax receivable debited and Tax payable credited, for the same amount

Point each tax code at its accounts

Each tax code books through a Tax posting profile, read in the subsidiary of the document. Give every code that charges tax a profile before its first document posts, or the posting is refused.

1. In Finance, create a posting profile of Type Tax in each subsidiary, with its Tax payable and Tax receivable accounts.
2. Go to Tax ‣ Configuration ‣ Tax codes and open the code.
3. Pick the Posting profile.
4. Click Save.

Because a code names the profile by its code, one tax code can serve several subsidiaries: give each subsidiary a Tax profile with the same Code, holding its own accounts.

Example

A distributor keeps standard VAT and import VAT apart. Its VAT-STD code names the profile TAX-STD, and its reverse-charge code names TAX-RC, each with its own pair of accounts. The VAT on sales and the VAT self-assessed on imported services then sit in separate accounts.

A code whose rate is zero books nothing, so zero-rated, exempt and out-of-scope codes need no profile. See Posting profiles for the other profile types.

Check the tax accounts against your documents

At month end, compare the balance of your tax accounts with the tax your posted documents carry, so a manual journal on a tax account or a missing posting shows up before you file.

1. Go to Finance ‣ Reports and open Reconciliation.
2. Pick Tax in Type, and the As of date.
3. Click Run.

The report shows the GL balance of the tax accounts, the Subledger total of the tax on posted documents, and the Difference. It reads Reconciled when they agree and Out of balance when they do not.

Note

A posted bill under a reverse-charge code shows in the report as a difference of twice its tax, though its two entries cancel out in the ledger.

Messages you may meet

Message	What to do
The tax code has no tax posting profile in this subsidiary.	Pick a Posting profile on each code the document charges, and check the subsidiary has a Tax profile with that Code.
The tax code’s posting profile has no tax account for this direction.	Fill in Tax payable (sales) or Tax receivable (purchases) on the profile.
A withholding tax code cannot be posted. Remove it from the tax group first.	Take the withholding code out of the line’s tax group.