5 Set Up Tax Rules by Company and Update Tax Amounts
This chapter contains these topics:
5.1 Setting Up Tax Rules by Company
From General Systems (G00), choose Tax Processing & Reporting
From Tax Processing and Reporting (G0021), choose Tax Rules by Company
Set up your tax rules so that the system can calculate the appropriate invoice and discount amount when you enter a transaction. You need to set up tax rules for each of your companies in your Accounts Payable, Accounts Receivable and General Accounting systems. The system uses these rules to:
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Display a warning message (or reject a transaction) whenever you enter a tax amount that differs from the system-calculated tax
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Determine whether invoice amounts should be calculated on the amount including or excluding the discount
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Determine whether discount amounts should be calculated on the gross amount (including tax) or the net amount (excluding tax)
The tax rules you set up for your system consist of tolerance ranges and calculation rules.
5.1.1 Understanding Tolerance Ranges
Tolerance ranges specify the amount of variance that can exist between the amount of tax you enter for a transaction and the tax amount that the system calculates. When you enter a tax amount that differs from the tax amount that the system calculates, you might receive a warning or a hard error message. You set up tolerance ranges to control the type of message that the system issues for different variance amounts. Tolerance ranges apply only to Value Added Tax (VAT).
Note:
You can specify tolerance ranges by percentages or amounts, but not both. If you specify tolerance percentage ranges, do not specify tolerance amount ranges. If you specify tolerance amount ranges, do not specify tolerance percent ranges.For example, you might specify a tax rule with a tolerance range by amounts as follows:
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Tolerance amount for warning is 2.
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Tolerance amount for error is 10.
To determine the taxable amount, the system multiplies the taxable amount by the tax rate. If the taxable amount for a transaction is 1000 and the tax rate is 10 percent, the system calculates a tax amount of 100. Based on your tolerance range, the system determines the range for warning or error as follows:
| Range | Explanation |
|---|---|
| Range for warning | Tolerance amount for warning is 2:
100 + 2 = 102 100 - 2 = 98 The system issues a warning message if the tax amount you enter is greater than 102 or less than 98 (that is, outside of the tolerance range of 98 to 102). NOTE: If you enter a tax amount of 98.01 or 101.99, the system does not issue a warning message. The amount is within the acceptable tolerance range. |
| Range for error | Tolerance amount for error is 10:
100 + 10 = 110 100 - 10 = 90 The system issues an error message if the tax amount you enter is greater than 110 or less than 90 (that is, outside of the tolerance range of 90 to 110). NOTE: If you enter a tax amount of 109.99 or 90.01, the system does not issue an error message. |
5.1.2 Understanding Calculation Rules
Set up calculation rules to specify how the system calculates tax and discounts amounts when both are specified.
The example uses the following amounts:
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Taxable: 1,000
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Tax percent: 10
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Tax amount: 100
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Discount: 1 percent
Example: Tax and Discount Calculation for the United Kingdom
In the United Kingdom, you must set company tax rules as follows:
| Tax Calculation | Formula |
|---|---|
| Calculate Tax on Gross (Including Discount) | No |
| Calculate Discount on Gross (Including Tax) | No |
| Discount Formula | (Taxable Amount x Discount Rate Percent) / ((1 - Discount Rate Percent) x Tax Rate)
(1,000 x .01) / ((1 - .01) x .10) = 10.10 |
| Gross Formula | Taxable Amount + Tax + Discount = 1,000 + 100 + 10.10 = 1,110.10 |
To set up tax rules by company
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Complete the following fields:
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Company
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System
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To specify the calculation rules for the company, complete the following fields:
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Calculate Tax on Gross (Including Discount)
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Calculate Discount on Gross (Including Tax)
For the United Kingdom, verify that the Calculate Tax on Gross and Calculate Discount on Gross fields are both set to no (N).
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To specify tolerance percentage ranges, complete the following fields:
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Tolerance Percentage for Warning
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Tolerance Percentage for Error
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To specify tolerance amount ranges, complete the following fields:
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Tolerance Amount for Warning
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Tolerance Amount for Error
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To further specify tolerance information for the Accounts Receivable system, complete the following: fields:
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Allow Understatement of Tax
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Calculate Sales Order Taxes on Summary
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Tax Service Date Selection
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Use the Add action.
| Field | Explanation |
|---|---|
| Calculate Tax on Gross (Including Disc) | A code that indicates whether to calculate the invoice amount on an amount that includes the discount. Valid codes are:
Y Calculate the invoice amount including the discount N Calculate the invoice amount excluding the discount Blank Defaults to Y, Self-assessed taxes are not included in discount calculations. NOTE: This field applies only to A/R, A/P, sales orders, and purchase orders. It does not apply to G/L processing. |
| Calculate Disc on Gross (Including Tax) | A code that indicates whether to calculate the discount on a gross amount that already includes the tax amount. Valid codes are:
Y Calculate the discount amount on the gross with tax. N Calculate the discount amount on the gross less the tax amount. Blank Defaults to N. Self-assessed taxes are not included in discount calculations. NOTE: This field does not apply to G/L processing. A/R, A/P, sales orders, and purchase order processing use it. |
| Tolerance Percentage for Warning | Percentage used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses this percentage to determine whether to display a warning message.
Enter the percentage as a whole number. For example, enter 10% as 10. If you enter 10 in this field and there is a difference between the tax amount you entered and the system-calculated tax amount, the system handles it as follows: Accept difference is 9.99% or less Warning difference is 10% or more The default (blank) causes a warning message to display if you enter a tax that does not exactly match the system-calculated amount tax. NOTE: This field applies only to VAT and GST. |
| Tolerance Percentage for Error | Percentage used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses the percentage to determine whether to reject the tax entry.
This percentage is used in conjunction with the Tolerance Percentage for Warning field. For example, a 10 tolerance percentage for warning and a 15 tolerance percentage for error works as follows: Accept difference is 9.99% or less Warning difference is between 10% and 14.99% Reject difference is 15% or more The default (blank) indicates that no entry is to be rejected. NOTE: This field applies only to VAT or GST. |
| Tolerance Amount for Warning | Percentage used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses this percentage to determine whether to display a warning message.
Enter the percentage as a whole number. For example, enter 10% as 10. If you enter 10 in this field and there is a difference between the tax amount you entered and the system-calculated tax amount, the system handles it as follows: Accept difference is 9.99% or less Warning difference is 10% or more The default (blank) causes a warning message to display if you enter a tax that does not exactly match the system-calculated amount tax. NOTE: This field applies only to VAT and GST. |
| Tolerance Amount for Error | Percentage used only for A/R, A/P, and G/L processing (sales order and purchase order processing do not use it). When you enter a VAT or GST amount that differs from the system-calculated tax, the system uses the percentage to determine whether to reject the tax entry.
This percentage is used in conjunction with the Tolerance Percentage for Warning field. For example, a 10 tolerance percentage for warning and a 15 tolerance percentage for error works as follows: Accept difference is 9.99% or less Warning difference is between 10% and 14.99% Reject difference is 15% or more The default (blank) indicates that no entry is to be rejected. NOTE: This field applies only to VAT or GST. |
| System (A/R=1, A/P=2, G/L=3) | Number that indicates which systems the tax rules apply to. Numbers are:
1 A/R and Sales Orders 2 A/P and Purchase Orders 3 General ledger (journal) entries |
| Calculate Sales Order Taxes on Summary | Code that indicates whether the system calculates taxes and performs rounding for sales orders at the detail or the order level. Values are:
Y Calculate taxes and rounding at the order level. N Calculate taxes and rounding at the detail level. Blank Defaults to N. |
| Tax Service Date Selection | Code which indicates what date will be used as the tax service date for orders entered through the sales order processing system. Values are:
1 Order date is used as tax service date 2 Invoice date is used as tax service date 3 Ship date is used as tax service date Blank Order date defaults as tax service date Value can be specified at the ship to address number level or the header branch plant company level. If the ship to address number value is blank, the header branch plant company value will be retrieved. If both values are blank, the order date will default as the tax service date. |
5.2 Setting Up to Update Tax Amounts
In the United Kingdom, you set up your tax rules so that the system does not calculate tax on the gross amount of a transaction. In this case, the system takes into account whether the transaction is eligible for a discount when calculating tax for the transaction.
Regardless of how your tax rules are set up, you also need to specify if and how the system updates the Sales/Use/VAT Tax file with tax amounts. The values that you define in the processing options for the G/L posting program determine whether the system updates tax amounts in the Sales/Use/VAT Tax file (F0018).
Define processing option 9 as either a 1, 2, or 3 in the following post programs:
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General Ledger Post - Invoice Entry (Version ZJDE0002)
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General Ledger Post - Voucher Entry (Version ZJDE0003)
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General Ledger Post - Manual/Void Payment (Version ZJDE0004)
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General Ledger Post - Cash Receipts (Version ZJDE0005)
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General Ledger Post - Check Writer (Version ZJDE0006)
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General Ledger Post - Voucher Post (Version ZJDE0002)
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General Ledger Post - Manual Payments (Version ZJDE0004 or ZJDE0005)
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General Ledger Post - Invoice Post (Version ZJDE0006)
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General Ledger Post - Cash Receipts (Version ZJDE0007)
You must also define this processing option for any other post program that uses the above versions in the base software.
If you do not set the processing options correctly, the system will not transfer the applicable tax information to the Sales/Use/VAT Tax file.
5.2.1 Before You Begin
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Set up tax rules to specify how you want the system to process tax for discounted transactions. See Section 5.1, "Setting Up Tax Rules by Company."
5.2.2 What You Should Know About
| Field | Explanation |
|---|---|
| Tax inclusive and exclusive journal entries | When you enter transactions using the Journal Entry with Tax program (P09106), the system automatically updates the Sales/Use/VAT Tax file. The system ignores the tax processing options that you set up for the post programs.
See Section 10.1, "Entering Journal Entries with Tax" for more information about the Journal Entry with Tax program. |