Setting up VAT accounts

VAT accounts are ledger accounts used to automatically record VAT amounts calculated by the program when a VAT code is used.

They are used to record and monitor VAT due on sales and input VAT (recoverable) on purchases. Thanks to the automation of VAT codes, it is not necessary to manually calculate or record VAT amounts: Banana Accounting performs the calculations and postings automatically.

How VAT accounts work

When a VAT code is used, Banana Accounting automatically calculates:

• the taxable amount
• the VAT amount
• the amounts to be recorded in the Debit and Credit accounts
• the VAT amount to be recorded in the VAT account.

Based on the VAT account settings defined in the menu File > File and accounting properties > VAT/Sales tax or in the VAT Codes table, the program automatically records the VAT amounts in the appropriate accounts.

To check the calculation details, simply place the cursor on the transaction. In the information window at the bottom, the amounts recorded in the different accounts are displayed.

Use one automatic VAT account or specific VAT accounts?

In most cases, it is sufficient to use one automatic VAT account, a simpler solution to manage and control.

From a tax perspective, it is necessary to distinguish VAT due on sales from input VAT on purchases. In Banana Accounting, this distinction can be achieved either through separate VAT accounts or through VAT codes and the related reports.

In programs that do not use VAT codes, it is often necessary to record each type of transaction in separate VAT accounts in order to obtain the details required for checks and the VAT return.

With Banana Accounting, however, thanks to VAT Codes and the VAT Report, it is possible to obtain detailed information even when using a single VAT account.

In fact, it is possible to view:

• transactions and totals by individual VAT code
• transactions and totals by VAT rate
• transactions and totals by VAT account
• transactions and totals of VAT due and input VAT
• taxable amounts and recorded VAT amounts.

For this reason, in the standard Swiss templates of Banana Accounting, account 2201 - VAT settlement is normally used.

Using a single VAT account (2201 - VAT settlement)

If in the menu File > File and accounting properties > VAT /Sales tax the account 2201 - VAT settlement (automatic VAT account) is set as the default VAT account, it will be automatically used for all transactions containing a VAT code, both for VAT due and for input VAT.

In this case, in the VAT Codes table, column VAT account, it is not necessary to specify any VAT account.

All VAT amounts are recorded in the account 2201 - VAT settlement

• in Debit, input VAT amounts on purchases are recorded;
• in Credit, VAT amounts due on sales are recorded.

The account balance therefore represents the VAT amount to be paid to the tax authority or the VAT credit to be recovered.

Using specific VAT accounts

If you wish to use specific VAT accounts, you can associate a different VAT account with each VAT code.

For example, in Swiss charts of accounts it is common to use:

• accounts 1170 and 1171 for input VAT
• account 2200 for VAT due
• additional accounts for particular categories of VAT transactions.

To use specific VAT accounts, you must:

• add the desired VAT accounts to the chart of accounts (for example accounts 1170 and 1171 for input VAT);
• leave the Automatic VAT account field empty in the File and accounting properties > VAT/Sales tax  (File menu)
• specify in the VAT Codes table, VAT account column, the VAT account to be used for each code.

In this way, VAT amounts will be automatically recorded in the accounts specified for each VAT code, instead of in a single automatic VAT account.

Advantages of using the automatic VAT account

After years of experience and user support, we have found that using a single VAT account is often the most intuitive solution.

Unlike many traditional accounting programs, Banana Accounting allows you to obtain all this information directly from VAT Codes and the VAT Report, while at the same time maintaining a simpler and more orderly chart of accounts.

The main advantages are:

• a simpler and more orderly chart of accounts;
• an easier-to-read balance sheet;
• simplified management of transactions with different VAT rates;
• immediate view of the overall VAT balance;
• the possibility to check all VAT transactions in a single account card.

In the VAT account card, all VAT transactions are visible, both in Debit and in Credit.

When to use specific VAT accounts

In Banana Accounting, thanks to VAT Codes and the VAT Report, in most cases it is not necessary to use separate VAT accounts, as all the information required for VAT control and analysis is already available through the program reports.

In some countries or in certain organisations, however, it is common practice to use separate VAT accounts for each type of transaction. For example, in Germany it is common to use separate accounts for:

• VAT on sales
• VAT on purchases
• intra-community transactions
• other specific types of VAT transactions.

In these cases, the VAT return can be prepared directly using the balances of the individual VAT account cards.

To ensure compatibility with these operational requirements and different accounting practices, Banana Accounting allows you to associate a specific VAT account with each VAT code.

Closing VAT accounts at the end of the period

At the end of each VAT period, it is advisable to close the VAT accounts and transfer the balance to a single summary account.

This operation allows you to:

• To accurately determine the VAT amount to be paid or reclaimed
• keep the different VAT periods separate
• facilitate checks and the identification of any errors
• start the new period with a VAT balance of zero.

In templates that use account 2201 - VAT Report, the periodic closing allows the VAT situation to remain clear and easily verifiable at all times.

For more details, see the Periodic VAT Closing and VAT Payment page.