Using standard VAT accounting, you pay VAT on your sales whether or not your customer has paid you. Using cash accounting, you do not need to pay VAT until your customer has paid you. If your customer never pays you, you never have to pay the VAT.
You can use cash accounting if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million and can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.
Setting Up Cash VAT Scheme
As part of your initial Brightpearl account setup you will have been asked to select some tax settings, other details are automatically provided, these can be viewed and amended:
Set Tax Schemes & Method
Go to Setup > Company > Accounting: Tax
- Select your Tax scheme depending on where you are based
- Select your VAT method
1. Create Tax Codes
Brightpearl is set up with a number of default tax codes that should be used for each transaction. You can add, edit or remove tax codes, go to Setup > Localisation > Tax Codes.
- T0 – Zero rated
- T2 – Tax Exempt
- T20 – Standard rate VAT at 20%
- T4 – Sales to VAT registered EU customers
- T7 – Zero rated purchases from EU suppliers
- T8 – Standard rated purchases from EU suppliers
- T9 – Not rated; transactions not involving VAT (such as bank transfers or staff wages)
2. Create Tax Zones
Tax Zones allow you to apply a specific rate of tax (Tax Code) to a particular region, such as the UK or Europe.
If you wish for online sales to assume a certain tax rate depending on location, then assign a Tax Code to the Tax Zone. This structure allows you to set all exports at 0%, for example.
Set up a Tax Zone for each geographical region that needs its own tax regime. If you are in the UK, for example, your Tax Zones should be:
- United Kingdom
- United Kingdom (offshore)
- Europe
- Rest of World
You can set up as many Tax Zones as you like. Once you have defined Tax Zones, you should set up your Countries. and assign them to a Tax Zone.
3. Create Countries
Countries are used to apply a specific rate of tax depending on where the customer is located. Each country is assigned to a Tax Zone, which specifies the applicable Tax Codes. This structure allows you to set the UK rate for T20 as 20% and the "Rest of World" rate at 0%.
To add or remove countries go to Setup > Localisation > Countries. The dialling code is used to direct international SMS messages correctly.
Invoicing Settings
Go to Setup > Company > Accounting: Options
- Use today as the tax date when invoicing
Add Default Settings
Go to Setup > Company > Banking and Financials
- Default tax rate
- VAT/Tax number
