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Tax Codes and VAT Box Mapping

A tax code carries a VAT or sales-tax rate, the accounts the tax posts to, and which boxes of the VAT return each amount lands in. Every invoice line, bill line and journal line that involves tax names one. A finance team now maintains its own tax codes on the Set-up tab of Ledger & Finance, with the VAT return boxes chosen on the same form.

Where to find it

Admin Panel → Finance:

  • Ledger & Finance — the Set-up tab, Tax codes section: add and change a company's tax codes and their VAT boxes

Architect Panel → ERP - Finance:

  • Tax Codes — the codes as a datastore
  • VAT Box Mapping — which return box each code's output tax, input tax and net amounts go to

Starting with the UK codes

Importing the UK small and medium business chart template on the Chart of accounts tab can add the UK VAT codes with it: S20 (Standard rate 20%), R5 (Reduced rate 5%), Z0 (Zero rated), EX (Exempt), OS (Outside the scope of VAT, on no return box) and RC20 (Reverse charge 20%, services from abroad), each pointing at the template's VAT accounts. Most UK companies need little more.

Adding or changing a tax code

  1. Choose the company at the top and open Set-up. Under Tax codes press Add a tax code, or select a code to change it.
  2. Enter the Code (up to 16 letters, digits, hyphens or underscores), the Description, the Jurisdiction (for example GB, NL or US-CA) and the Rate %.
  3. Choose the Output tax account (sales) and the Input tax account (purchases).
  4. Tick Input tax is recoverable if VAT on purchases under this code can be reclaimed. Untick it and the tax becomes part of the cost.
  5. Tick Reverse charge (the buyer accounts for the tax) for services bought from abroad under the reverse charge.
  6. Set Valid from and Valid to if the code applies only for a time.
  7. Under VAT return keep UK default (output tax box 1, input tax box 4, net sales box 6, net purchases box 7; reverse charge also box 6), or choose Choose the boxes and tick the boxes for each amount. An amount with no box ticked is on no box, which is right for codes outside the scope of VAT or another country's tax.
  8. Press Add tax code or Save changes.

Changing a rate

A code already used on posted lines keeps its rate, accounts and reverse-charge setting; the form says how many lines use it. Changing them would make old returns unexplainable. To change a rate, set Valid to on the old code and add a new code from the next day.

Company and group codes

A code belongs to one company, or to the whole group. A group-wide code applies to every company, so changing one needs write access to all of them. Where a company has its own VAT box mapping for a code, it replaces the group's mapping for that company.

What goes wrong

  • "No tax codes, so documents are totalled with no tax" on the ERP Setup checklist: import the template's codes or add them.
  • "The rate is a percentage, for example 20 or 8.875": enter the number without a percent sign.
  • A chart account names a default tax code the company does not have: the Chart of accounts configuration check lists it. Add the code here, or clear it on the account.
  • A box looks wrong on the return: check the code's VAT return setting before blaming the postings.

Worked example

A UK company starts buying software services from a US supplier. The template's RC20 already has Rate % 20, Reverse charge ticked and the UK default boxes, so the controller simply codes the bill with it: the net lands in boxes 6 and 7 and the tax in boxes 1 and 4. A Dutch subsidiary needs its own codes: on its company they add NL21 with Jurisdiction NL and choose no boxes, because the UK nine-box return does not apply to it.

Recommendations

  • Start from the template's codes and add only what you trade under.
  • End a code rather than editing it when a rate changes.
  • Test one transaction per code and check it on a calculated VAT return before go-live.
  • Keep non-UK codes off the UK boxes by choosing no boxes for them.