Set up partial exemption

Sage Intacct supports partial exemption in Accounts Payable and Purchasing for companies using the following tax solutions under the associated terms:

  • Australia GST - reduced input tax credit (RITC)

  • Canadian Sales Tax - input tax credit (ITC)

  • France - partial exemption

  • United Kingdom VAT - partial exemption

To mark items in an AP supplier invoice or AR sales invoice as eligible for partial exemption, partial exemption needs to be set up.

About partial exemption

Partial exemption can have a variety of applications based on a company's location and the regional policies it operates under.

Typically, nonprofit organizations in the United Kingdom do not have profitable sales from which to recover their input VAT. However, according to HMRC rules, these organizations can enter an agreement with HMRC to claim a percentage of the input VAT they pay on qualifying purchases—a provision known as partial exemption. A nonprofit organization using a United Kingdom - VAT tax solution can enter an AP supplier invoice or AR sales invoice with items that are eligible for partial exemption to separate out the recoverable and non-recoverable portions of the input VAT.

Australian companies can use it to take advantage of the reduced input tax credit (RITC) for purchases that have mixed business and personal use.

Canadian companies have access to the input tax credit (ITC) at different exemption rates at the provincial level.

French companies require the flexibility of partial exemption for a variety of transaction types.

When your organization is configured for partial exemption and you enter an AP supplier invoice or AR sales invoice in Accounts Payable or Purchasing, you can mark a line item as eligible for partial exemption in the United Kingdom and France, for RITC exemption in Australia, or for ITC exemption in Canada. Sage Intacct automatically handles the details of managing the partial exemption, including the following:

  • It calculates the recoverable and non-recoverable portions of the input VAT or GST.

  • It captures the recoverable amount for reporting in your VAT or GST return.

  • It expenses the non-recoverable amount to the GL account for the line or to a partial exemption GL account if one was specified during partial exemption configuration.

Your United Kingdom nonprofit organization is configured for partial exemption with a partial exemption rate of 25%. You purchase office supplies at a standard rate, and you want to recover part of the input VAT.

To do that, complete these steps:

  1. Create an AP supplier invoice and enter the header information.
  2. Enter a line item for the office supplies, selecting a goods standard rate Tax detail and the Partly exempt checkbox:

    For this line, Intacct does the following:

    • Calculates the transaction tax as 100.00 (.25 * 400.00).
    • Calculates and displays a recoverable tax amount of 25.00, using the partial tax exemption rate of 25% (.25 * 100.00). The recoverable tax amount is displayed in the details area for the line.
  3. When you post the AP supplier invoice, Intacct does the following:
    • Captures the 25.00 recoverable tax amount in the tax record for reporting on the tax return.
    • Debits the 25.00 recoverable tax amount to the GL account for the tax detail, and debits the 75.00 non-recoverable tax amount to the GL account for Office Supplies. The non-recoverable tax amount is part of the expense of the supplies.

You can create AR sales invoices with similar partial exemptions in Purchasing. You can enable and deactivate partial exemption at any time.

Entities that have partial exemption turned on cannot use the custom tax detail 'Assign taxes to expense account'. French entities cannot use partial exemption with cash basis tax capture.

Set up partial exemption in multi-entity

In a multi-entity organization, you set up partial exemption by entity.

For companies that operate in the United Kingdom, this provides flexibility for large organizations that have different agreements for partial exemption with HMRC for the entities within the organization.

For companies operating in Australia, this allows you to adjust the mixed use rate for the reduced input tax credit.

Partial exemption rates can change over time for UK and Australian entities. To account for this, you can set an effective date for each exemption to ensure that the correct partial exemption rate is applied at the right time.

Enabling partial exemption by entity gives you the flexibility to do the following:

  • Use different partial exemption rates for each entity. Different entities can qualify for different rates with HMRC.

  • Choose not to enable partial exemption in entities that do profitable business and do not qualify for partial exemption. Some nonprofit organizations can also engage in profitable trading and have separate entities for profitable and non-profitable business. Some companies do not have purchases that are mixed business and personal use.

Companies operating in Canada set input tax credit percentages by tax detail first, and then by entity. You can set a default percentage for a tax detail, and you can also set different tax detail percentages for specific entities. Setting ITC percentages for tax details lets Canadian companies use different percentages for entities operating in different provinces.

Subscription

Company

Taxes
Regional availability

  • Australia

  • Canada

  • France

  • United Kingdom
User type Business user with Admin privileges
Permissions Entities: List, View, Add, Edit
Configuration

The tax solution for the entity is Australia - GST

The tax solution for the entity is Canadian Sales Tax - SYS

The tax solution for the entity is TVA Française - SYS

The tax solution for the entity is United Kingdom - VAT

Set up partial exemption Australian entities as RITC

For companies using the Australian tax solution, RITC is enabled and configured in the entity.

  1. Go to Company > Setup > Entities.
  2. Find the Entity that you want to configure for RITC in Accounts Payable and Purchasing.
  3. Select Edit.
  4. Select the Enable reduced input tax credit checkbox.

    A table appears in which you can enter the RITC rate and the date the rate is to be effective.

  5. Select Default reduced input tax credit to make RITC selected for all transactions. By default, RITC is not selected and must be checked for each transaction.
  6. In the Unrecoverable tax account dropdown, select an account for the RITC amounts to be posted to. By default, RITC amounts are posted to the GL account.
  7. Enter rates. For each rate you enter, select the Effective date and enter the rate in Percent value.
  8. Select Save.
  9. Repeat for each Australian entity you want to enable for RITC.

Set up partial exemption in Canadian entities and tax details

For entities using a Canadian tax solution, partial exemption is enabled in the entity and configured in the tax details.

  1. Go to Company > Setup > Entities.
  2. Select Edit next to the entity for which you want to enable partial exemption in Accounts Payable and Purchasing.
  3. Select the Enable input tax credit checkbox.
  4. Select Default input tax credit on to make partial exemption selected for all transactions. By default, partial exemption is not selected and must be checked for each transaction.
  5. In the Unrecoverable tax account dropdown, select an account for the partial exemptions to be posted to. By default, partial exemptions are posted to the GL account.
  6. Select Save.
  7. Repeat for each entity you want to enable for partial exemption.
  1. In the Accounts Payable, Purchasing, or Taxes application, go to Setup > Tax > Details.
  2. Select Edit next to the tax detail to set ITC percentages. You can only set ITC percentages on tax details associated with the standard tax solution for Canada.
  3. In the Input tax credit section, set the default input tax credit percentage.
  4. Use the table to set specific ITC percentages by entity. You must enable an entity for ITC before you can configure a percentage for the tax detail in that entity.
  5. Select Save.
  6. Repeat for each tax detail you want to configure for ITC.

Set up partial exemption in French entities and tax details

For entities using a French tax solution, partial exemption is enabled in the entity and configured in the tax details.

  1. Go to Company > Setup > Entities.
  2. Select Edit next to the entity for which you want to enable partial exemption in Accounts Payable and Purchasing.
  3. Select the Enable partial exemption checkbox.
  4. Select Default partial exemption on to make partial exemption selected for all transactions. By default, partial exemption is not selected and must be checked for each transaction.
  5. In the Unrecoverable tax account dropdown, select an account for the partial exemptions to be posted to. By default, partial exemptions are posted to the GL account.
  6. Select Save.
  7. Repeat for each entity you want to enable for partial exemption.
  1. In the Accounts Payable, Purchasing, or Taxes application, go to Setup > Tax > Details.
  2. Select Edit next to the tax detail to set partial exemption percentages. You can only set partial exemption percentages on tax details associated with the standard tax solution for France.
  3. In the Partial exemption section, set the default partial exemption percentage.
  4. Use the table to set specific partial exemption percentages by entity. You must enable an entity for partial exemption before you can configure a percentage for the tax detail in that entity.
  5. Select Save.
  6. Repeat for each tax detail you want to configure for partial exemption.

Set up partial exemption in UK entities

For entities using a UK tax solution, partial exemption is enabled in the entity and configured in the tax details.

  1. Go to Company > Setup > Entities.
  2. Select Edit next to the entity for which you want to enable partial exemption in Accounts Payable and Purchasing.
  3. Select the Enable partial exemption checkbox.
  4. Select Default partial exemption on to make partial exemption selected for all transactions. By default, partial exemption is not selected and must be checked for each transaction.
  5. In the Unrecoverable tax account dropdown, select an account for the partial exemptions to be posted to. By default, partial exemptions are posted to the GL account.
  6. Enter rates. For each rate you enter, select the Effective date and enter the rate in Percent value.
    You can leave these fields empty if you intend to configure partial exemption for tax details. Partial exemption will default to the entity settings unless a percentage has been set for a tax detail. The tax detail percentage settings override the entity percentage settings.
  7. Select Save.
  8. Repeat for each entity you want to enable for partial exemption.
  1. In the Accounts Payable, Purchasing, or Taxes application, go to Setup > Tax > Details.
  2. Select Edit next to the tax detail to set partial exemption percentages. You can only set partial exemption percentages on tax details associated with the standard tax solution for the UK.
  3. In the Partial exemption section, set the default partial exemption percentage.
  4. Use the table to set specific partial exemption percentages by entity. You must enable an entity for partial exemption before you can configure a percentage for the tax detail in that entity.
  5. Select Save.
  6. Repeat for each tax detail you want to configure for partial exemption.

When partial exemption is enabled for an entity, the Partly exempt, RITC, or ITC checkbox appears for each line item in an AP supplier invoice or AR sales invoice.

AP supplier invoices and AR sales invoices with partial exemption line items can only be entered at the entity level. Intacct uses the partial exemption rate that's in effect for the entity to determine the recoverable and non-recoverable portions of the input VAT or GST.