Tax codes are used by Manager to calculate and record taxes invoiced, collected, paid, and owed. They can be used for sales taxes, goods and services taxes, value added taxes, and other taxes imposed by a country or regional tax authority. They are applied (separately and distinctly, if necessary) to individual line items on:
Tax amounts calculated from tax codes are posted to the Tax payable liability account, which activates automatically in your chart of accounts when a tax code is created. Tax payable is a control account, keeping separate track of each tax code used, even though all are aggregated on the Balance Sheet.
On some transaction forms, an option is available as to whether amounts are tax-inclusive or tax-exclusive:
When tax-inclusive, Manager calculates effective prices that, when combined with tax at the specified rate, equal the amount entered. In other words, the tax amount is effectively backed out of the total. When tax-exclusive, Manager applies the tax rate to the entered amount and adds the resulting tax to obtain a higher total.
You can add as many tax codes as you need to use. In the Settings tab, click Tax Codes:
Click New Tax Code. Two options exist:
Manager includes approximately 230 in-built codes. These are always preferable if they meet your needs. In many cases, more than one tax rate or type is available for a country. Select a code relevant to your country and business operations:
No other steps are necessary. Repeat the process if you need to use more codes. If your country or the specific tax type and rate you need are not on the list, you will need to create one or more custom tax codes.
Manager provides a generic framework for creating simple or complex tax codes to handle almost any tax scenario. To set up a custom tax code, go to the Settings tab, click New Tax Code, then New custom tax code. Enter a name for the custom tax code. Three rate options are available in the dropdown box that appears:
By default, all tax amounts are posted to the Tax payable liability account. Posting elsewhere requires creation of custom tax payable accounts and is discussed in another Guide.
If the custom tax code includes more than one component, select Multiple rates and enter each tax component on its own line. Use the Add line button to add additional components. If your tax code contains components subject to compounding, enter the compounded rate into applicable
Tax rate fields.
Click Create to save the tax code. On sales invoices, your tax components will be shown separately:
Some jurisdictions use what are known as flat rate schemes, usually to simplify record-keeping and tax filing. Such schemes free a business from the need to record and offset taxes paid against those collected. Under such schemes, a standard tax rate is applied on sales, but a lower rate is remitted to the tax authority. This lower rate is calculated on the total amount for a line item, including standard tax. The difference is kept by the business as additional income. Often, flat tax rates vary by business type and size, based on assumptions of average tax paid to suppliers by businesses with certain characteristics. So they must be set up as custom tax codes in Manager.
To add a flat rate tax code, follow the same procedure as for any other single-rate custom tax code. (Flat rate schemes cannot be used with multi-component tax codes.) Name the tax code as you want customers to see it, normally with the standard tax rate. Check the Flat rate box and enter the lower rate you will pay to the tax authority:
Customers will see the standard tax rate on sales invoices, and Accounts receivable will show the full amount as being due. But Tax payable will show a lesser amount. The difference will be added to the income account where the particular line item on the sales invoice is posted.