Calculate the expected selling prices of your stock in hand

At the end of each year or when you cease to use the scheme, you must make an adjustment for the value of your stock in hand. This calculation also uses the expected selling prices of your stock in hand at the start of the annual period.

To obtain a copy of the Stock Expected Selling Price report, please contact Sage Technical Support.

Internal information: A replacement report is available for you to send to customers from \\n03file01\sbd\Ask_FOC_files\Accounts\Product_reports This should be copied to My Products Reports.

NOTE: To use this report you must have created Product Records for all of your stock items, these must also hold the correct tax code and selling price for the item. The quantity on stock must also be correct at the time the report is run.

1. Products and services > Reports.
2. My product and service reports > select the Stock Expected Selling Price report > Print.
3. Complete the Criteria window > OK.
4. Complete the Printer window as required > OK.

The figures from this report are used in the annual adjustment calculation. This report is not retrospective and therefore must be run when you've finished posting stock transactions in one period and before you enter any stock transactions for the next period. When you run this report for the end of one VAT year, the figures are used as the closing stock for one year and then the opening stock for the next year.

Create a customer House Account

When you've calculated the amount of VAT that can be reclaimed, to correct your Sales Tax Control Account you should post a sales invoice and sales credit. To ensure that these new transactions don't affect any of your existing customer accounts, we advise you to create a new customer House Account.

1. Customers > New/edit > New.
2. Complete the customer record as follows:
   

   A/C	Enter the account reference for the new record, for example, HOUSE.
   Name	Enter the account name, for example, House Account.

   Complete any other information, as required.
3. Save > Close.

You've created the customer House Account.

Create the Direct Calculation Sales VAT nominal code

When you post your sales transactions, we advise you to use the standard rate tax code, T1 by default. This means that 20% of your gross sales is posted to the Sales Tax Control Account. When you calculate your output tax, the VAT figure will probably be lower than that in the Sales Tax Control Account. This also means that your net sales have been understated. To correct this you need to move the relevant amount to a new nominal code.

If you're using the Sage default nominal ledger structure we suggest you use the following nominal code. If you've already created this nominal code, please proceed to the following section.

Nominal Code	Name	Management Report	Section of Report
4498	Direct Calculation Sales VAT	Profit and Loss	Sales

1. Nominal codes > New.
2. Complete the details as follows:
   

   N\C	Enter the nominal code number you want to create, for example, 4498.
   Name	Enter the name of the account, for example, Direct Calculation Sales VAT.

3. Save > Close.

You've created the new nominal code. You must now check the chart of accounts to ensure the new nominal code is included. Read more >

Create lower rated goods tax code

If you've lower rated goods, they must be entered using the relevant tax code. You may already have tax code T5 set up as a lower rate goods. If not you should create one before proceeding.

1. Settings > Configuration> Tax Codes tab.
2. Select the tax code to be amended, for example T3 > Edit.
3. Complete the Edit Tax Code window as follows:
   

   Code	This box is automatically updated by Sage Accounts and displays the tax code.
   Rate	Enter the VAT rate this tax code is to apply to transactions. For example, to set up a 5% VAT rate, enter 5.00 in this box. NOTE: If you select the EC Code check box, the Rate box isn't available.
   Include in VAT Return	To include transactions with this tax code in the VAT Return, select this check box.
   Description	To add a description to your tax code, enter the relevant description in this box.
   EC Code	Don't select this check box.

4. OK > Apply > Close.

You've now created a new lower rated goods tax code.

Record your purchases received for retail sales at standard rate, lower rate and zero rate

When you're using the Direct Calculation scheme, you should record your purchases using the relevant tax codes.

NOTE: On all purchase transactions recording purchases received for retail sales, you must use the department field to record the mark-up percentage. For example, to record a standard rated purchase invoice for £100 plus 20.00 VAT with a mark-up of 20%, use Department 20 to record the mark-up.

When a purchase received for retail sales is to be recorded you should post either:

• A purchase invoice with either the standard rate, lower rate or zero rate tax code, as applicable.
• A bank payment with either the standard rate, lower rate or zero rate tax code, as applicable.
• A cash payment with either the standard rate, lower rate or zero rate tax code, as applicable.
• A visa payment with either the standard rate, lower rate or zero rate tax code, as applicable.

When a purchase for retail sales is returned, you should post:

• A purchase credit with either the standard rate, lower rate or zero rate tax code, as applicable. You must enter the same department as the related purchase invoice.

Enter retail sales for vatable goods under the Direct Calculation Retail scheme

• When a retail sale is made for vatable goods a bank receipt, cash receipt or visa receipt should be posted.
• When a credit sale is made for vatable goods a sales invoice should be posted.
• When credit sale goods are returned a sales credit should be posted.
  

  NOTE: Although you may not know the relevant tax code for the sales transactions, you should always use T1. This then applies a standard rate of VAT and updates the Sales Tax Control Account. The Sales Tax Control Account balance is corrected once you've completed the VAT calculations.

Produce the Daily Gross Takings reports

At the end of each VAT quarter you must produce a list of retail sales in that period. This list is produced by running the Daily Gross Takings reports. There are two gross takings reports, one which provides a total for transaction types SI, BR, CR, VR, and one which provides a total for transaction type SC.

These reports are only available in the Sage 50 Accounts - Additional Reports Backup, you can download and restore this from the Updates page on support.sage.co.uk. Read more >

1. VAT > Reports.
2. VAT Scheme Reports > Daily Gross Takings report > Print.
3. Enter the date range required, for example, the VAT period > OK.
4. Complete the Printer window as required then to print the report > OK.

You've now produced your Daily Gross Takings report, you should repeat this procedure for the Daily Gross Credits report.

When you've produced both reports, you should deduct the total value of the Daily Gross Credits report from the total value of the Daily Gross Takings report. The remaining figure is the value of your daily gross takings, to be used in your VAT calculation.

Establish which goods are your minority goods

The second stage of the scheme requires you to calculate the expected selling price of your minority rated goods. These are the goods, zero rated, lower rated or standard rated, which make up the smaller part of your daily gross takings.

For example, if 60% of retail sales are standard rated, and 40% are zero rated, then the minority rated sales are your zero rated goods.

You'd therefore calculate the expected selling price of your zero rated purchases. This total is then used in the calculation of your VAT liability as set out in VAT Notice 727/5 Appendix A1.

If however 60% of your retail sales are zero rated, and 40% are standard rated, your standard rated goods are the minority goods.

You'd therefore calculate the expected selling price of these standard rated purchases. This total is then used in the calculation of your VAT liability as set out in VAT Notice 727/5 Appendix A1.

For further information on determining your minority rated goods, please refer to VAT Notice 727/5 Retail Schemes: How to work the Direct Calculation schemes.

When you've decided which rated goods are your minority goods, you must calculate the expected selling prices of these goods.

Calculate the expected selling price of your retail goods

The calculation used for the Direct Calculation scheme requires you to know the expected selling price of all of your goods, for all of the relevant tax codes.

The following reports are only available in the Sage 50 Accounts - Additional Reports Backup, you can download and restore this from the Updates page on support.sage.co.uk. Read more >

1. VAT > Reports.
2. VAT Scheme Reports > select the relevant expected selling price report > Print.
3. Enter the date range required > OK.
4. Complete the Printer window as required > OK.
   
   Repeat steps 2 to 4 until you've printed the following reports:

   Retail Scheme - ESP Lower Rated Credits	AT_ESPLC.report
   Retail Scheme - ESP Lower Rated Goods	AT_ESPLI.report
   Retail Scheme - ESP Standard Rated Credits	AT_ESPSC.report
   Retail Scheme - ESP Standard Rated Goods	AT_ESPSI.report
   Retail Scheme - ESP Zero Rated Credits	AT_ESPZC.report
   Retail Scheme - ESP Zero Rated Goods	AT_ESPZI.report

   NOTE: The lower rated reports pick up transactions posted with a T3 tax code. If you've used a different tax code, please contact Sage Technical Support to edit the report.

5. Subtract the value of the credits report from the total of the goods report. For example, to establish the ESP for lower rated goods, you must subtract the value of the Retail Scheme - ESP Lower Rated Credits report from the total of the Retail Scheme - ESP Lower Rated Goods report.

You've now established the expected selling prices of the goods received, and are ready to use these figures the VAT calculation. If you require further information about the VAT calculation, please refer to your local VAT office. When you've established the output VAT amount, please proceed to the following section.

Correct the balance on your Sales Tax Control Account

Once you've used the calculations as specified in VAT Notices 727 / 4, you need to correct the balance on your Sales Tax Control Account. This balance is incorrect because you've recorded all of your sales at the standard rate, and then applied the Direct Calculation to your sales.

NOTE: In this example the balance on the Sales Tax Control Account is £225. This is made up of standard rate VAT applied to £1000 sales. The output tax was calculated at £200.

To correct the balance on the Sales Tax Control Account you should:

• Post a sales credit to the customer House Account to remove the difference between the balance on the Sales Tax Control Account and the calculated output tax, for example, £25.
• Post a sales invoice to the customer House Account to correct the balance on it and move the relevant amount of sales VAT to the Direct Calculation Sales VAT nominal code.

Post the sales credit

1. Customers > Batch credit.
2. Enter the relevant information to record the credit, for example:
   

   A/C	Date	N/C	Details	Net	T/C	VAT
   HOUSE	Date within the VAT Period	4498	Direct Calculation Sales VAT	0.00	T1	25.00

3. Save > Close.

This sales credit reduces the balance on the Sales Tax Control Account.

Post the sales invoice

1. Customers > Batch invoice.
2. Enter the relevant information to record the invoice details, for example:

   A/C	Date	N/C	Details	Net	T/C	VAT
   HOUSE	Date within the VAT Period	4498	Direct Calculation Sales VAT	25.00	T1	0.00

3. Save > Close.

This customer invoice corrects the Debtors Control Account and posts the value to the Direct Calculation Sales VAT nominal code.

Annual Adjustments

Once you've calculated the value of the annual adjustment you may have either under or over paid your VAT. When this figure is established, you must post correcting transactions into Sage Accounts.

If you over paid VAT post the following transactions:

Type	Customer A/C	N/C	Net Amount	T/C	VAT
SC	House Customer	4498	0.00	T1	VAT amount over paid
SI	House Customer	4498	VAT amount over paid	T1	0.00

If you've under paid VAT, post the following transactions:

Type	Customer A/C	N/C	Net Amount	T/C	VAT
SI	House Customer	4498	0.00	T1	VAT amount under paid
SC	House Customer	4498	VAT amount under paid	T1	0.00

Where the VAT amount is the amount of the over or under payment.

You've now accounted for VAT under the Direct Calculation Retail scheme - scheme 2 in Sage 50 Accounts.