What the VAT regime means
The query “VAT regime” is usually used when referring to the procedure for accounting for value added tax: an organization’s VAT status, recognition of tax on sales and purchases, adjustments, preparation of the return, and fulfillment of obligations to the state budget. At the same time, VAT and the general taxation procedure are not the same thing. The general taxation procedure describes the taxation procedure applied by the taxpayer, while VAT accounting relates to a separate tax obligation.
Therefore, an accountant must first determine two circumstances: which taxation procedure the organization applies and what its VAT registration status is. It cannot automatically be assumed that every enterprise applying the general taxation procedure is already registered as a VAT payer. These parameters should be checked and recorded separately in the accounting system.
If a newly established taxpayer has not selected a special tax regime in accordance with the established procedure, it is deemed to have selected the general taxation procedure (Art. 716 of the Tax Code of the RK). A newly established legal entity selects a special regime by submitting a notification to the tax authority no later than five business days after state registration. Consequently, the applicable taxation procedure is determined not by the settings of the accounting software, but by the taxpayer’s actions and the provisions of the Tax Code.
VAT and the general taxation regime
The phrase “VAT general taxation regime” most often appears during the initial setup of accounting, a transition to another taxation procedure, or the correction of erroneous parameters in the accounting database. For correct operation, it is not sufficient to change the VAT rate in an individual document. The organization’s tax accounting policy must be checked, and it must be ensured that the software correctly reflects the applicable taxation procedure and VAT status.
In 1C, the location of the relevant settings depends on the configuration, release, and user permissions. The accountant needs to open the organization’s details and tax accounting settings, then compare the specified parameters with the taxation procedure actually applied and the organization’s registration data. If the usual menu item is absent, the settings should be sought in the organization card or the accounting policy section.
Before changing the parameters, it is useful to check the following in sequence:
- the organization for which the accounting policy has been established;
- the effective period of each setting;
- the specified taxation procedure;
- the organization’s VAT registration status;
- the settings for recognizing sales and purchases;
- previously entered documents relating to the period being changed.
Changing the accounting policy retroactively may alter document posting results and reporting indicators. Therefore, after adjusting the settings, the affected period should be determined, the relevant documents reposted, turnovers checked, and the result reconciled with source documents and accounting registers. Changing a parameter in the software itself does not replace a notification or another action prescribed for selecting a tax regime.
When transitioning from the general taxation procedure to a special regime or vice versa, the selection and transition rules must be taken into account. Subject to the established conditions, legal entities applying the general taxation procedure may transition to the special tax regime based on a simplified return, while individual entrepreneurs may transition to this regime and, in the prescribed cases, to the regime for peasant or farm enterprises (Art. 716 of the Tax Code of the RK).
How an accountant should organize VAT accounting
VAT work can conveniently be divided into several control areas. The first is checking the applicable taxation procedure and the organization’s VAT status. The second is the correct classification of each business transaction: sale, purchase, return, adjustment, or a transaction involving a tax agent. The third is checking source and accounting documents. The fourth is reconciling accounting data with tax reporting indicators.
In practice, the following procedure should be applied:
- Check the applicable taxation procedure and the parameters of the tax accounting policy.
- Ensure that the documents relate to the correct organization and period.
- Check the selected transaction type and the applied VAT rate.
- Reconcile the tax base, tax amount, and document total.
- Check returns, corrections, and adjustments separately.
- Analyze discrepancies before preparing the reports.
If the software displays the message: “when the VAT rate differs from ‘VAT is calculated by the tax agent,’ the tax amount after adjustment cannot be equal to 0,” the interrelated document details must be checked. This message means that the selected transaction parameters and the specified tax amount are inconsistent. The reason may be an incorrectly selected transaction type, rate, calculation method, source document, or adjustment data.
Correcting the error by simply replacing the rate without analyzing the document is risky. First, the substance of the business transaction, the source and original accounting documents, the grounds for the adjustment, and the return indicator must be determined. The details can then be corrected, the document reposted, and the effect of the change on the registers and draft return checked.
If the Tax Code provides for different taxation conditions for certain transactions, the accountant must determine whether an obligation to maintain separate tax accounting arises. The categories to be separated include, in particular, types of activities, sales turnover, types of income, construction projects, and tax rates. Items in categories for which separate accounting is required may not be combined when calculating tax obligations (Art. 210 of the Tax Code of the RK).
The taxpayer establishes the procedure for maintaining separate tax accounting in its tax accounting policy. It sets out the accounting methods applied, as well as the list of common income and expenses and the methods for allocating them among the separate categories and other activities. This rule must be taken into account when configuring analytics and registers: the software must make it possible to separate indicators for which the Code provides different taxation conditions (Art. 210 of the Tax Code of the RK).
A separate rule applies to a taxpayer using the special tax regime based on a simplified return if it receives income taxable under the general taxation procedure. Separate tax accounting must be maintained for such income independently of the obligations under the special regime (Art. 210 of the Tax Code of the RK). Therefore, the existence of individual transactions under the general taxation procedure should not be recorded as an automatic change of regime for all activities.
What to check before reporting
Before closing the period, the accountant should reconcile the organization’s settings, source documents, accounting registers, and draft return. Particular attention should be paid to documents that were corrected manually, reposted after a change in the accounting policy, or contain returns and adjustments.
It is useful to check that:
- the taxation procedure is set for the correct organization and period;
- the VAT registration status is correctly recorded in the database;
- the transaction types and rates selected in the documents correspond to the substance of the transactions;
- the tax amount is consistent with the specified tax base and the document total;
- tax agent transactions are separated from the organization’s ordinary transactions;
- adjustments are linked to the relevant source documents;
- the analytics allow separate tax accounting to be maintained where required by the Code.
If the organization changes settings or corrects prior periods, the result must be assessed not only by the absence of software errors. The main criterion is whether the accounting data correspond to actual transactions, source documents, registration status, and the applicable taxation procedure. After reposting the documents, the registers and draft reports must be generated again to identify changes in the indicators.
When combining transactions subject to different taxation conditions, the separate accounting procedure established in the tax accounting policy must be checked. The taxpayer is required to maintain such accounting in the cases provided for by the Tax Code, and the methods used must ensure the separate calculation of obligations for the relevant categories (Art. 210 of the Tax Code of the RK).
Frequently Asked Questions
Is VAT a separate tax regime? — No. In accounting, it is necessary to distinguish between the taxation procedure applied by the organization and its VAT registration status and obligations. These parameters are related to tax calculation but are not interchangeable.
Can an organization applying the general taxation procedure account for VAT? — VAT accounting is determined by the organization’s registration status and the substance of its transactions. Therefore, the applicable taxation procedure and VAT accounting parameters must be checked separately in the accounting system.
How can the tax regime be checked in 1C? — Open the organization card and the tax accounting policy settings. Check the organization, the effective period of the entry, and the specified taxation procedure. The names and locations of commands depend on the software configuration and release.
Why does 1C require a non-zero VAT amount after an adjustment? — The selected transaction details require tax to be calculated, but the amount has not been entered or became zero after the adjustment. Check the transaction type, rate, calculation method, tax amount, source document, and return indicator.
When is separate tax accounting required? — It is maintained in the cases provided for by the Tax Code for categories subject to different taxation conditions. The taxpayer establishes the procedure for such accounting in its tax accounting policy (Art. 210 of the Tax Code of the RK).