Understanding the Automatic Tax Details on Journal Types

The automatic tax calculation facility can provide the following capabilities on transactions for selected journal types:

  • The identification of the tax portion of a transaction and generation of the appropriate postings to the input or output tax accounts identified in Tax Details (TXD).
  • The apportionment of the tax amount over two tax accounts, if required.
  • The identification of and generation of the appropriate postings for withholding tax or other stoppages.

See Understanding the Automatic Tax Calculation Facility.

Calculating Tax by Account Type

If the automatic tax calculation facility is being used for a journal type, you can determine whether the tax is calculated on the Gross or Net value, by account type:

  • If the tax is calculated based on the Gross value, the tax amount calculated acquires the opposite debit/credit indicator to the original transaction.
  • If the tax is calculated based on the Net value, the tax amount calculated acquires the same debit/credit indicator as the original transaction.

For example, if you select the Gross tax calculation option for creditor accounts, and then enter a credit amount to a creditor account on Ledger Entry (LEN), the tax amount is generated with a debit indicator.

You must also define the tax rates and accounts to be used, in Tax Details (TXD).

The automatic calculation of tax is triggered by entering a valid tax analysis code on a journal line. The point at which it is appropriate to enter the tax analysis code can differ from one journal line to another. If you select Unused in this field or enter a code for which no tax details exist, tax is not calculated on a journal line on which this account type is used.

Calculating Stoppage by Account Type

Regardless of whether you select the gross or net amount as the basis for the stoppage tax calculation for an account type, the stoppage tax calculated acquires the same debit/credit indicator as the original transaction. For example, if the gross transaction has a debit value, then the stoppage tax transaction is also a debit. The second transaction generated for stoppage, which is posted to the account from which the tax originates, has the reverse sign.

The automatic calculation of stoppage tax is triggered by entering the appropriate tax analysis code on a journal line. The point at which it is appropriate to enter the analysis code can differ from one journal line to another. For example, you could specify that the stoppage tax calculation is based on the gross amount when a debtor, creditor or client account is entered with the tax analysis code. You might also specify that the stoppage tax calculation is based on the net amount when a profit and loss, balance sheet or memo account is entered with the tax analysis code. If you define both, then both are calculated for tax codes which contain the necessary information in Tax Details (TXD).

See How is Stoppage or Withholding Tax Treated?

Tax Reporting Requirements

If you are required to produce an ESL for European tax reporting, or a 1099 for US tax requirements, you can use ledger transaction analysis codes to identify the various types of transaction.