VAT payments to gov. for previous year

handymanhandyman Member Posts: 3

I'm struggling to understand how to handle my Feb. (bi monthly) VAT payment to the Gov. which covers the VAT owed for the Nov/Dec period in the previous year.

Running a 'sales tax' report includes the Feb. payment towards the current years VAT, throwing the amount to pay out by the amount of the Feb. payment.

(I'm fresh from spreadsheets and new to Wave, so KISS please lol!)

Comments

  • AlexLAlexL Administrator Posts: 801 admin

    Hey @Handyman . Welcome to Wave, glad to have you with us :smile: . If I'm understanding your situation correctly, you should be able to just filter for the appropriate dates at the top of the Sales Tax report which will give you your necessary numbers, ultimately filtering out February.

  • Chris_SHCC1Chris_SHCC1 Member Posts: 22

    If I get you this is one I never got to solve either and it drives me nuts. You have made a VAT payment in Feb for an amount that is pre Wave. I.e. it is not an amount owed generated in Wave sales tax so its throwing your sales tax report out.

    I have the same issue. In simple terms Alex we need a Sales Tax owed starting balance, just like you have bank account starting balance when new users set up. Or a way to address it.

    Chris

  • handymanhandyman Member Posts: 3
    Exactly Chris 😊
  • handymanhandyman Member Posts: 3

    I must be using the wrong 'tags' for my VAT records.

    For example: I go to reports and the 'payment owing' figure in the PAYMENTS & BALANCES OWING table is always wrong because it takes the tax I owe (within the two month period I've searched for) and minuses the tax I've paid to the Gov. during that same period, which is of course to cover the tax from the previous two month period.

    Thankfully I can use the upper SALES & PURCHASES table of results which does at least tell me what tax I should pay.

  • BarsinABarsinA Administrator Posts: 355 admin

    I just want to thank you for your clarification and contributions here @Chris_SHCC1 @handyman

    If you take a look at this article, the third section discusses creating a starting balance for non-payment or non-anchored accounts, like a sales tax in your case. I think you'd need to create a journal transaction enter the starting balance as a credit, and select the liability account you are entering the starting balance for. Enter a debit to your Owner's Equity account for the same amount.

    https://support.waveapps.com/hc/en-us/articles/208622796-Starting-balances-What-they-are-and-how-to-enter-them-in-Wave

    I believe this might give you the solution you need, but correct me if I'm wrong!

  • Chris_SHCC1Chris_SHCC1 Member Posts: 22

    Hi Barsin

    Almost but I think you put me on the right track. Handyman try this -

    Make notes firsts, dates amounts etc. Then you can put it back if it doesn't work for you.
    Create a journal entry for the date you paid your VAT.
    Add a debit for that amount and allocate it to the VAT Tax Collected (Liability) account in the drop down.
    Add a credit for the same amount and allocate this to your bank account you paid it with.
    Delete out the original transaction from your bank statement.

    Check quarter by quarter in the Sales Tax report. Your bank account should balance, the VAT payment is record, but it doesn't appear in that section of the Sales Tax report.

    Have a look, see it it works for you.

    C

  • Chris_SHCC1Chris_SHCC1 Member Posts: 22

    I just had another play with this and I don’t think it works. :(. Did a couple of variants too.

    Barsin what we need is a way to start the sales tax account with a negative balance. Whilst a journal entry technically is correct as the tax is a liability against the equity at the starting point, for the cash sales tax report to work correctly there needs to be a negative balance. The first quarter in Wave of will carry that payment.

    Even if you journal the payment on the paid date it is accounted in that quarter and offsets the tax collected in that quarter.

    How ever it achieved the "debit" must be against the bank account to been seen in the Cash Sales Report - I can't use accrual.

    Make sense?

    edited October 10, 2019
  • EmmaPEmmaP Administrator Posts: 147 admin

    Hey @Chris_SHCC1 & @handyman! I was able to consult an accounting pro on this one! From what we see, you have tax remittances you are liable for that are 'pre' any of the data you currently have in Wave?

    If so, this can be fixed by adding a Starting Balance entry as of your first day of data in Wave, or as of the beginning of your fiscal year (whichever makes more sense for you and your business). The journal transaction should credit VAT (liability account) for the amount you owed as of the end of 2018, and debit “owner’s equity” for the same amount. This way, when you remit your VAT payment in January, and categorize it as “sales tax payment to government” > “VAT”, this transaction will clear out the balance you have recorded as 'owing' with that Starting Balance transaction.

    In terms of the Sales Tax report, to view the liabilities for each quarter all you need to do is set the date range correctly. The top section of the report will show the tax liability for that quarter — all you need to pay attention to is the top section. This will show what you owe relative to the date range selected.

    Hope that helps :)

  • Chris_SHCC1Chris_SHCC1 Member Posts: 22

    Thanks Emma.

    Yes we have sort of been through that part and that does introduce the data to Wave. The issue is that transaction is not recognised in the Sales Tax Report when set to Cash Reporting, The payment is however,

    The majority of GST collection in Australia and I believe VAT in the UK is cash based not accrual. What the bottom section allows you to do is reconcile against your GST/VAT statements. Hence to be a true Cash based Sales Tax Report there needs to be a way of recognising these liabilities that will be ultimately paid via the cash (bank) account.

    Regards
    Chris

  • EmmaPEmmaP Administrator Posts: 147 admin

    Hey @Chris_SHCC1! Thanks for getting back to me. Because Wave is accrual based, you are correct that this method will not show in the cash-based report. There is a way you can get around this but the process is a bit messy so it is not something we'd usually recommend.

    Instead of adding in a “Starting Balance” transaction as recommended, on your first day of data (or the beginning of your fiscal year) in Wave go to: Accounting > Transactions > Add Income transaction. Make sure that the Account for the transaction is a Cash or Bank account (e.g. “Cash on Hand”, or “Bank Account”). The amount of the transaction should be the amount of VAT owed at the beginning of that year (e.g. if you owed $100 in VAT, make the transaction for $100). Underneath the category menu, click “include sales tax”, and then select VAT. You can then manually enter in the VAT amount as the full amount of the transaction (e.g. $100), and click “update”. Save the transaction and go to the Sales Tax report. You can see that full amount now registering as owing at the top of the report, even if Cash Basis is selected. Doing this will still leave a balance sitting in “Cash on Hand” (or whichever Cash or Bank account used for the transaction), so the last step you need to take is record a journal transaction. Credit the Cash or Bank account for the amount of the previous transaction (e.g. $100), and then debit Owner’s Equity (or “Retained Earnings/Deficit”) for the same amount.

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