There is no VAT margin scheme functionality in Procountor. However, the VAT margin scheme entries can be created with the following models presented in this article:
- Primary method, in which the income statement effect of purchases and sales is restated with the imputed amount of value added tax in both negative and positive profit margin situations of each taxation period. Also, the imputed value added tax receivable is entered to the balance sheet when the profit margin is negative.
- Secondary method, in which only the entry with actual value added tax proportion is created by the profit margin when it is positive.
It should be noted that the models presented in this article (including suggestions of used accounts & newly added accounts to the chart of accounts) are just examples about how transactions under VAT margin scheme can be handled in Procountor. For example, there might be different kinds of industry-specific characteristics that should be verified from the Finnish Tax Administration and/or from the Accounting Board (Kirjanpitolautakunta). The basic models presented in this article can be applied and modified to fit the necessary company- or organization-specific situations in a desired way.
All examples presented in this article describe situations in which the payable tax from the profit margin will be eventually included in the field number 301 of Tax return for self-assessed taxes using Domestic VAT status for sales as well as VAT percentage of 24%.
In the next section, a few foundation procedures of VAT margin scheme for both the primary and secondary method are presented.
Creating a report formula
Examples presented in this article describe situations in which purchases and sales under VAT margin scheme are entered to several receipts daily. A report formula is a tool that will easily present the total values of each taxation period and that will help in calculating the profit margin. However, if the combined balances of transactions under VAT margin scheme are brought to a single receipt with a single entry in each taxation period, creating the report formula and income statement accounts presented below is not necessarily required.
Daily accounting entries of purchases and sales under VAT margin scheme are entered to the following accounts in the examples of this article:
- 3400, Sales, used goods, art, collector pieces and antiques
- 4150, Purchases, used goods, art, collection items and antique
Total balances of entries under VAT margin scheme made to these accounts are later transferred to new accounts made for the VAT margin scheme procedure (more information about these accounts can be found below the next heading). The report formula is, therefore, a useful tool for seeing if the profit margin of a taxation period is either positive or negative.
The report formula can be created for example the following way:
- Navigate to Accounting reports by choosing Accounting > Accounting reports from the main menu.
- Click Report formulas (new) button in the top bar to get to Report formulas.
- Click New button and choose "Use empty template" from the Select template for new report formula. Deliberate selection of a base formula is not necessary, since the formula will be emptied and replaced in step 5. Click Continue.
- Give the report a name and determine the type as Income statement. Push the Edit as text button.
- If on the step 3 you chose some other template than the empty one, empty the text at this point. Then paste this following formula to the window instead and choose Continue:
3400 Sales of used goods;;;;1;BALANCE;;false;true;false;true;false;false;3400;
4150 Purchases of used goods;;;;1;BALANCE;;false;true;false;true;false;false;4150;
Profit margin;;;;1;ROW_FUNCTION;;false;true;false;true;false;false;R1+R2;
It should be noted that it is possible to manually determine translations to the report formula in Finnish and Swedish as well, if there is a need to take this report in other languages. The translations can be managed by first choosing the Show translation button on the report formula page.
Finally, save the report formula from Save button. When the report formula has been saved, it will be visible in Accounting report type menu in Accounting reports view.
Creating new accounts
In order to create VAT margin scheme entries based on transactions entered to accounts 3400 and 4150 during a taxation period, two new accounts have to be added, for example:
- 3410, VAT margin scheme sales
- 4160, VAT margin scheme purchases
If the VAT margin scheme transactions are handled with the primary method presented later in this guide, it is also necessary create an account for the imputed value added tax receivable to assets of balance sheet, for example:
- 1848, Imputed VAT receivable of VAT margin scheme
Primary method
This section includes examples of the primary method, in which the income statement effect of purchases and sales is restated with the imputed amount of value added tax in both negative and positive profit margin situations of each taxation period. Also, the imputed value added tax receivable is entered to the balance sheet when the profit margin is negative.
Negative profit margin in January
A company has the following purchases and sales under VAT margin scheme in January:
- VAT margin scheme sales, 1 000,00 euros in total
- VAT margin scheme purchases, 2 000,00 euros in total
Accounting entries of the sales are created with No VAT handling VAT status; therefore, no VAT effect will occur from them:
Also, the purchase entries have been made with No VAT handling VAT status; therefore, no VAT effect will occur from them:
In this example, there are only two transactions under VAT margin scheme in January. In reality, there could several receipts: in these kinds of situations, the easiest way to see the profit margin is to use the report formula created for tracking the profit margin:
Because the profit margin is negative in January, no VAT related entries (which would create payable VAT liability from the VAT margin scheme transactions on the tax return for self-assessed taxes) are created. However, another journal receipt is created for January’s negative profit margin with the following characteristics:
- The receipt clears the balances of accounts 3400 and 4150 and transfers the balances to accounts 3410 and 4160.
- The receipt restates the income statement effect of purchase and sales with the imputed amount of value added tax.
- The receipt enters value added tax receivable of the negative profit margin to receivables in the balance sheet.
The following picture can be opened in a larger size to a new tab by clicking the picture:
Transaction description column contains information about the function of each row:
- First four rows (not including the 8890 account) transfer the entries made to accounts 3400 and 4150 in January to accounts 3410 and 4160. For accounts 3410 and 4160, VAT status is set to be Domestic and VAT percentage is set to be 24%. It should be noted that also the row of purchases has a VAT type of Sales: this way all entries that reverse each other will be visible in the same field in VAT summary and in tax return for self-assessed taxes. These entries will also ensure that the imputed value added tax will be automatically deducted from the balances seen in the income statement. These entries will not lead to any incorrect balances in tax return for self-assessed taxes, since the receipt also includes adjustment for the tax return for self-assessed taxes (the adjustment is described in more detail below).
- Last three rows are made for entering the imputed value added tax receivable of the negative profit margin to the balance sheet. Also, these entries will adjust the VAT effect on accounts 3410 and 4160 to zero. In the example picture, account 3410 is used: however, this account can be chosen freely, since no balance will be left in the account from the two entries as the balances in Accounting value column reverse each other.
After these entries, income statement of January contains the following values:
It is also possible see the total combined value of tax base and tax amount when drilling down into the receipt information of the income statement, since the total values have been set to transaction description.
January’s balance sheet includes the imputed value added tax receivable:
Because the value added tax effect of the receipt described earlier is completely neutralized, VAT summary of January does not contain any balance:
Also, January’s tax return for self-assessed taxes does not contain anything from the VAT margin scheme entries:
When taking a more detailed look into field number 301 by clicking Search information button, it can be seen that the January’s VAT margin scheme receipt presented earlier contains entries that neutralize each other in the row information of the field (the picture can be opened in a larger size to a new tab by clicking the picture):
In the end, January’s outcome is that the negative profit margin does not form any kind of VAT effect on the tax return for self-assessed taxes. Also, the income statement includes adjustments of the imputed value added tax of VAT margin scheme and the imputed value added tax receivable from the negative profit margin has been placed in balance sheet’s receivables.
Positive profit margin in February
The company has the following purchases and sales under VAT margin scheme in February:
- VAT margin scheme sales, 4 000,00 euros in total
- VAT margin scheme purchases, 700,00 euros in total
Accounting entries of the sales are created with No VAT handling VAT status; therefore, no VAT effect will occur from them:
Also, the purchase entries have been made with No VAT handling VAT status; therefore, no VAT effect will occur from them:
In this example, there are only two transactions under VAT margin scheme in February. In reality, there could several receipts: in these kinds of situations, the easiest way to see the profit margin is to use the report formula created for tracking the profit margin:
The profit margin of February’s transactions is 3 300,00 euros. Because January’s profit margin was -1 000,00 euros, February’s ultimate profit margin is 2 300,00, as January’s negative profit margin is taken into consideration. For February’s entries, a journal receipt is created which can be done in the most convenient way by first copying the January’s receipt presented earlier.
The following picture can be opened in a larger size to a new tab by clicking the picture:
Transaction description column contains information about the function of each row:
- First four rows (not including 8890) transfer the entries made to accounts 3400 and 4150 in February to accounts 3410 and 4160. For accounts 3410 and 4160, VAT status is set to be Domestic and VAT percentage is set to be 24%. It should be noted that also the row of purchases has a VAT type of Sales: this way all entries that reverse each other will be visible in the same field in VAT summary and in tax return for self-assessed taxes. These entries will also ensure that the imputed value added tax will be automatically deducted from the balances seen in the income statement.
- Last three rows are made for clearing the imputed value added tax receivable of the negative profit margin in January from the balance sheet. Also, clearing of the imputed VAT receivable from January will lessen the VAT liability from February’s positive profit margin by the entries made to account 3410. In the example picture, account 3410 is used: however, this account can be chosen freely, since no balance will be left in the account from the two entries as the balances in Accounting value column reverse each other.
After these entries, income statement of February contains the following values:
It is also possible see the total combined value of tax base and tax amount when drilling down into the receipt information of the income statement, since the total vales have been set to transaction description.
February’s balance sheet doesn’t anymore contain the imputed value added tax receivable that was entered earlier based on the negative profit margin of January.
February’s VAT summary contains VAT liability that is the outcome of January’s negative profit margin (-1 000,00 euros) and February’s positive profit margin (3 300,00 euros): total value is, therefore, 2 300,00 euros (2 300,00 / 1,24 – 2 300,00 = -445,16):
The same amount is visible in the field 301 of tax return for self-assessed taxes:
When taking a more detailed look into field number 301 by clicking Search information button, it can be seen that the February’s VAT margin scheme receipt presented earlier formulates the VAT liability of 445,16 based on three separate entries (the picture can be opened in a larger size to a new tab by clicking the picture):
In the end, February’s outcome is a tax return for self-assessed taxes which takes the imputed value added tax receivable from January’s negative profit margin into consideration as a deduction to the value added tax liability from February’s profit margin.
Positive profit margin in March
The company has the following purchases and sales under VAT margin scheme in March:
- VAT margin scheme sales, 2 200,00 euros in total
- VAT margin scheme purchases, 900,00 euros in total
Like in the examples of January and February, the entries are made using No VAT handling VAT status; therefore, no VAT effect will occur from them.
Creating the VAT margin scheme entries for March is more straightforward since any negative profit margin and imputed value added tax receivable from earlier months does not have to be taken into consideration. The profit margin of March, seen by using the report formula, is 1 300,00 euros. VAT margin scheme entries are made with the following receipt (the picture can be opened in a larger size to a new tab by clicking the picture):
Based on these entries, the income statement of March contains the imputed value added tax adjustments for sales and purchases just like in the examples of January and February. After creating the receipt, VAT summary and tax return for self-assessed taxes are created in the same way than in January’s and February’s examples. March’s tax return for self-assessed taxes contains 251,62 euros in field 301. More detailed, row-specific information of the field content can bee seen by clicking Search information button (the picture can be opened in a larger size to a new tab by clicking the picture):
VAT liability of 251,62 euros is calculated from March’s profit margin (1 300,00 euros): 1 300,00 / 1,24 – 1 300,00 = -251,62.
Secondary method
This section includes a simple example of the secondary method, in which only the entry with actual value added tax proportion is created by the profit margin when it is positive.
If the profit margin seen from the report formula is negative, no VAT margin scheme entries are made. If the profit margin is positive, an entry that will be included in the tax return for self-assessed taxes is made.
A company has the following purchases and sales under VAT margin scheme in April:
- VAT margin scheme sales, 2 000,00 euros in total
- VAT margin scheme purchases, 1 000,00 euros in total
Therefore, the profit margin of April is 1 000,00 euros. The following receipt is created for the VAT margin scheme entries (the picture can be opened in a larger size to a new tab by clicking the picture):
Entries on the receipt transfer balances from accounts 3400 and 4150 that are used in the report formula to accounts 3410 and 4160 in a way that the profit margin (1 000,00 euros) row has Domestic VAT status and VAT percentage of 24%: this way the profit margin of thousand euros is divided to tax base (806,45 euros) and to VAT liability (193,55 euros) which is later visible in field 301 of tax return for self-assessed taxes after VAT summary and the tax return are made.