GST Issues Relating to Lay-Bys

Until GST, most businesses did not have to worry about calculating tax on cash orders or lay-bys, since retailers did not typically operate with a tax exemption number. This has changed with the introduction of GST.

In INSTALLATION Workshop under Install|Taxes|GST & Sales Tax there is an option: Calculate tax on lay-by payments.

By default this is unticked. This setting may not be appropriate for your business. You should discuss the matter with your accountant before deciding on an appropriate setting.

You should decide which method to use as soon as possible and set it immediately.

Once you have set it, it is NOT recommended that you change it after you have started to raise new cash orders or lay-bys.

If you do change this setting and you have already entered cash orders or lay-bys into your system, then CAPITAL may complain if you run an Invoice Recalculation that your sales tax calculations for these transactions are incorrect. You may remove and re-enter those transactions and this will correct the tax calculation and eliminate the warning message. Selecting the correct setting from the beginning will, of course, avoid any unnecessary input re-entry work.

Calculate Tax on Lay-by Payments

If you need to account for tax such as GST when managing cash orders and lay-bys this parameter controls how it is calculated.

Untick to calculate tax on the order or lay-by total or to calculate tax on each payment received.

If unticked the tax (e.g., GST) is calculated and charged to your business as soon as the order or lay-by is entered into the system. Taxes are NOT then calculated for the payments that are received afterwards. This is sometimes referred to as the "accrual" setting of the lay-by/cash order system.

If ticked, tax (e.g., GST) is not calculated on the goods ordered or lay-byed. Tax is only calculated on each cash payment as it is received. This is sometimes referred to as the "cash basis" setting of the lay-by/cash order system.

If you will be calculating the GST to pay based on each customer payment received, you must also assign a tax rate code to be assigned to cash payments. To do this:

1. Start INSTALLATION Workshop.

2. Move to the Install menu.

3. Select Taxes.

4. Select GST & Sales Tax

5. Next to the setting Tax rate on lay-by payments enter an appropriate inclusive tax rate code. See Tax Rate Issues for more information on this topic.

Procedures Summary

The "accrual" lay-by/cash order accounting procedure is:

Tax is calculated immediately.
Non-stock items default to zero tax (these are deposit amounts).
Part payments default to zero tax/GST.

The "cash basis" lay-by/cash order accounting procedure is:

No tax is calculated on lay-by items with product codes.
Tax is calculated on deposits (non stock items).
Part payments apply the lay-by/cash order payment default tax rate for each payment amount.

When using the lay-by or cash order system you MUST use inclusive tax rate codes when processing those types of transactions. If you do not do this sales analysis profit estimating and reporting may be incorrect. For more information on inclusive tax rate codes see: Tax Rate Issues.

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