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The three Tax Types available in MoneyWorks are G.S.T. or V.A.T., Sales Tax and Composite Tax. Different country has a different tax requirement, example, Singapore and Malaysia are using "G.S.T. or V.A.T." whereas United State uses "Sales Tax". Unlike Sales Tax which only has a Tax Received account, the "G.S.T. or V.A.T." tax type allow the user to link a Tax Paid (Input tax) and a Tax Received account (Output tax) to a tax code.
A Composite Tax is a combination of other taxes. It can be multiplicative or a combined rate of the various taxes on a taxable amount.
Let's say you have a composite tax which combined two tax codes of 6% and a 10% rate. A sale of $10,000 with a composite tax that calculates base on a combined rate gets a tax amount of S$1,600.
Working of a combined rate method: First tax code with 6% rate: $10,000 * 6% = $600 Second tax code with 10% rate: $10,000 * 10% = $1,000 Total tax amount: $1,600 Total tax rate: 16%
The multiplicative rate method is different from a combined rate. Instead of having a tax amount of $1,600, you get $1,660.
Working of a multiplicative rate method: First tax code with 6% rate: $10,000 * 6% = $600 The amount inclusive of tax is $10,600 Second tax code with 10% rate: $10,600 * 10% = $1,060 The total tax amount: $1,660 The effective tax rate: 16.6%
When creating a multiplicative composite tax code, the "Mult" checkbox of the second tax rate has to be checked.
Consult an accountant if you are not sure about the tax type used in your country.
For existing user, you can refer to the MoneyWorks v7 User Guide page 201, GST, VAT, Sales Tax and Tax Codes, for more information on setting up taxes.
If you are considering of switching from another accounting software or upgrade from a manual system may download a trial copy of MoneyWorks from our website or attend a demo at our office.