How do I account for VAT using the Tour Operators Margin scheme?

Create a Customer Record to use with TOMS

1. Click Customers then click New.
2. Enter the account details for the VAT House Account. For example, in the A/C box enter HOUSE and in the Name box enter VAT House Account.
3. Click Save then click Close.

You've successfully created a new customer account, and are now ready to create a new VAT Adjustments nominal code. For further information about this, please refer to the following section.

Create a VAT Adjustments nominal code

1. Click Nominal codes and click New.
2. Complete the Nominal Record as follows:

   N/C	Enter the required nominal code, for example, 4999.
   Name	Enter a name for the nominal code, for example, VAT Adjustments.

   NOTE: If you're not using the Sage default nominal structure, then you may need to use a different nominal code.
3. Click Save then click Close.

You've now created a new VAT Adjustments nominal code. You should now change your tax codes to work with TOMS, for further information about this, please refer to the following section.

Set up the new tax codes

NOTE: If you've already used T3, T6 or T10 for other purposes, please substitute with your own tax codes.

1. Click Settings then click Configuration and click Tax Codes.
2. Select the T3 Tax Code and click Edit.
3. In the Rate box enter 0.00, select the Include in VAT return check box then click OK.
   TIP: Adding TOMS to the description will help them to stand out as TOMS tax codes. 
   Repeat steps 2 and 3 for tax codes T6 and T10.
   
   
4. Click Apply then click Close.

Tax codes to use when using the TOMS

Use the following tax codes when you enter any income and expenditure transactions under the TOMS:

For example, when entering income transactions relating to the scheme such as sales invoices for standard rated sales, enter the gross value of the invoice in the net column with a tax code of T3 and zero in the VAT column. The amount of VAT can't be calculated at this stage, so it's entered as zero.

When entering expenditure transactions relating to the scheme such as purchase invoices for standard rated purchases, enter the gross value of the invoice in the net column with the tax code of T10 and zero in the VAT column.

Using TOMS for the first time

If you've just registered for VAT or have just started to make margin scheme supplies, you must work out a provisional margin percentage to use during your first financial year. This may be based on any of the following:

• Previous trading figures
• Projected costings and margins
• Actual quarterly figures during the first year

Whatever method you choose, the Simplified End-Of-Year annual adjustment will correct any underpayment or overpayment of VAT arising during the first year.

The provisional adjustment will be on a quarterly or monthly basis, depending on the periods used for your VAT Returns.

Before making any adjustment you must print out your Sage VAT Return and label it 'Before Adjustment'. After making your adjustment you must print out your Sage Accounts VAT Return and label it 'After Adjustment'. For further information about producing a VAT Return, please refer to the following article >

These print outs will assist in making the Simplified End-Of-Year adjustment.

Simplified End-Of-Year Calculation Method (Annual Adjustment)

You should use this method to calculate the percentage used in the Simplified Provisional Margin Calculation Method in subsequent financial years. The Simplified Provisional Margin Calculation Method is then used to calculate provisional VAT on the monthly or quarterly VAT Returns in subsequent financial years. However as the monthly or quarterly VAT Returns during the year are only calculated on a provisional basis, a year end VAT adjustment is required, which is payable or deductible on the next VAT Return immediately following the financial year end. For this annual adjustment the Simplified End-Of-Year Calculation Method is used.

Part of the procedure outlined below is based on the standard VAT Returns produced within Sage Accounts for the previous financial year. You must produce the VAT Return, and post the VAT transfer and payment as you would for the Standard VAT scheme. For more information about producing a VAT Return, please refer to the following article >

If you didn't produce your previous VAT Returns in Sage Accounts then please disregard step 1 and obtain the relevant figures for step 2 from your previous system.

1. To assist with the year end calculations you need to obtain copies of the VAT Returns produced for the whole of the previous year. These consist of the following:
   
   a) The VAT Returns before any TOMS adjustments have been made. These should be labelled 'Before Adjustments'.
   
   b) The VAT Returns after any TOMS adjustments have been made. These should be labelled 'After Adjustments'. For example, if you previously produced monthly VAT Returns you should have 24 reports, if you produced quarterly VAT Returns then you should have 8 reports.
   
   
2. Using the VAT Returns before any TOMS adjustments have been made, those from step 1a, obtain the following values and apply them to Section 10 of VAT Notice 709/5.
   
   a) Total the VAT inclusive selling price of your margin scheme sales supplied during the financial year. That's the total value of sales under tax code T3.
   
   From each of the VAT Returns add together the values under tax code T3 on box 6.
   
   b) The total of the VAT inclusive purchase prices of the designated travel services included in the total at (a). That's the total value of purchases under tax code T10.
   
   From each of the VAT Returns add together the values under tax code T10 on box 7.
   
   
3. Using the VAT Returns after any adjustments, those from step 1b, calculate the provisional output (Sales) VAT that's been accounted for during that financial year. Add together the VAT elements under tax code T3 on box 1 from each of the VAT Returns. This value is then also applied to Section 10 of VAT Notice 709/5.
4. From the calculations in Section 10 the yearly VAT adjustment which is payable or deductible on the next VAT Return in your new financial year is worked out. If the amount is positive this is the amount of VAT payable. If the amount is negative then this is the amount of VAT deductible.
5. The VAT payable or deductible calculated above should be included on the first VAT Return of the new financial year. This is achieved by posting two transactions to the Customer VAT House Account, using the VAT Adjustments nominal code 4999 and dating the transaction within the current VAT period.

Now you've calculated the amount of VAT that's to be adjusted for the previous financial year, to find out how to enter the amount payable or deductible, please refer to the following sections.

Year end adjustment when VAT amount due is payable

To enter the amount of VAT payable you must:

• Enter a sales invoice onto the VAT House Account, using the nominal code 4999. This has a net amount of zero, the T6 tax code and the amount of the adjustment in the VAT column.
• Enter a sales credit onto the VAT House Account, using the nominal code 4999. This has a net amount of the adjustment, the T6 tax code and VAT amount of zero.

Post the sales invoice

1. Click Customers then click Batch invoice.
2. Enter the required information in the boxes provided to record the invoice, for example, to post a £150 adjustment:
   

   A/C	Date	N/C	Details	Net	T/C	VAT
   House	Current VAT period	4999	VAT adjustment	0.00	T6	150.00

3. Click Save then click Close.

Post the sales credit

1. Click Customers then click Batch credit.
2. Enter the required information in the boxes provided to record the credit, for example, to post a £150 adjustment:

   A/C	Date	N/C	Details	Net	T/C	VAT
   House	Current VAT period	4999	VAT adjustment	150.00	T6	0.00

3. Click Save then click Close.

NOTE: You should allocate the credit against the invoice within the Bank module.

Year end adjustment when VAT amount due is deductible

To enter the amount of VAT deductible you must:

• Enter a sales invoice onto the VAT House Account, using the nominal code 4999, a net amount of the VAT adjustment, the T6 tax code and zero in the VAT column.
• Enter a sales credit onto the VAT House Account, using the nominal code 4999, a net amount of zero, the T6 tax code and the VAT amount of the VAT adjustment.

Post the sales invoice

1. Click Customers then click Batch invoice.
2. Enter the required information into the boxes provided to record the invoice, for example, to post a £150 adjustment:

   A/C	Date	N/C	Details	Net	T/C	VAT
   House	Current VAT period	4999	VAT adjustment	150.00	T6	0.00

3. Click Save then click Close.

Post the sales credit

1. Click Customers then click Batch credit.
2. Enter the required information into the boxes provided to record the credit, for example, to post a £150 adjustment:

   A/C	Date	N/C	Details	Net	T/C	VAT
   House	Current VAT period	4999	VAT adjustment	0.00	T6	150.00

3. Click Save then click Close.

NOTE: You should allocate the credit to the invoice within the Bank module.

Now that the amount of VAT has been adjusted for the previous financial year take a backup of your data and label it 'After Year End VAT Adjustment'.

To calculate the VAT for each period in the new financial year on a provisional basis, a simplified calculation can be used if you've used the Simplified End-of-Year Calculation Method. For further information about this, please refer to the following section.

Simplified Provisional Margin Calculation for the following financial year

When the Simplified End-of-Year Calculation Method has been used for the previous financial year then this percentage method can be used to provisionally adjust the VAT during the subsequent years. After this provisional method has been used for the next financial year, the simplified end of year method must still be used at the next year end to calculate any final adjustments.

Calculate the provisional amount of VAT to be adjusted during the next years VAT periods

1. Produce a Sage VAT Return for the period you're reconciling and label the printout 'Before Adjustments'. This print out will be used in the Simplified End-of-Year Calculation Method to establish any final adjustments to be made at the year end. For further information about producing a Sage VAT Return, please refer to the following article >
2. Figures obtained in the previous Simplified End-of-Year Calculation Method can be applied to Section 11 of VAT Notice 709/5 to calculate the percentage adjustment value.
3. Use the Sage VAT Return produced in step 1 above to calculate the 'Total VAT-inclusive selling price of your margin scheme sales supplied during the financial year'. That is, the total value of sales used under Tax Code T3 on Box 6. This value is then also applied to Section 11 of VAT Notice 709/5 to give the provisional TOMS adjustment to be accounted for the prescribed accounting period.
4. To adjust the amount of VAT, post a sales invoice to the VAT House Account using nominal code 4999 with the net amount of the VAT adjustment, tax code T3 and zero in the Net column. Then enter a sales credit onto the VAT House Account using the nominal code 4999 with a VAT amount of zero, tax code T3 and VAT amount of the VAT adjustment. Allocate the credit note against the invoice through the Customer Receipts option within the Bank module.

Post the sales invoice

1. Click Customers then click Batch invoice.
2. Enter the required information into the boxes provided to record the invoice, for example, to post a £268.09 adjustment:

   A/C	Date	N/C	Details	Net	T/C	VAT
   House	Current VAT period	4999	VAT adjustment	0.00	T3	268.09

3. Click Save then click Close.

You've successfully posted the customer invoice to record the VAT adjustment, you now need to post the customer credit.

Post the sales credit

1. Click Customers then click Batch credit.
2. Enter the following details in the boxes provided to record the credit, for example, to post a £268.09 adjustment:

   A/C	Date	N/C	Details	Net	T/C	VAT
   House	Current VAT period	4999	VAT adjustment	268.09	T3	0.00

3. Click Save then click Close.

You've now posted a customer credit for the VAT adjustment, and should now allocate the credit note to the invoice.

Now that the amount of VAT has been provisionally adjusted for the period you should take a backup of your data and label it 'After Year End VAT Adjustment'. Reproduce the Sage VAT Return for the period you're reconciling and label the print out 'After Adjustments'. This print out will be used when calculating the Simplified End-of-Year Annual Adjustment. You've now adjusted the VAT for the period on a provisional basis. Follow the same procedure to adjust the VAT in the preceding VAT periods. At the end of the Financial Year it's necessary to follow the Simplified End-of-Year Annual Adjustment routine to make any final adjustments.