The Basics of VAT and GST for Expense Reporting

Value-Added Tax (VAT), Goods and Services Tax (GST), and Provincial Sales Tax (PST) are everyday considerations for the finance teams managing business expenses. The United States still uses sales tax, but increased cross-border trade, as well as business travel and expenses, make indirect tax considerations more relevant than ever. And correctly calculating and reclaiming funds from these indirect programs can reduce costs and boost compliance.

Of course, this leaves AP and accounting professionals with a bigger workload. 

The good news is that many ERPs and quality expense reporting integrations can automatically calculate VAT and GST for you. 

How do VAT and GST work for expense reporting?

There is no fundamental difference between VAT and GST. Both are consumption tax rates. Essentially, VAT and GST taxes are calculated at each step of the supply chain and added to the final price. 

From an expense-management perspective, VAT and GST costs offer reimbursement opportunities. For example, if have a business registered in Canada, GST and PST paid towards your travel expenses may be eligible for reimbursement.

The issue for expense reporting teams is that each country or province has its own VAT and GST rules and refund requirements. As a result, requesting reimbursements can be tedious and confusing. 

Furthermore, for businesses operating in countries with VAT or GST, overall compliance can be a headache. Incorrectly calculating GST or VAT can result in expensive fines and penalties.

As a result, it’s important to work with an accounting system that considers VAT and GST.  

The VAT Reclaim Process

Since each country has different rules, getting specific here is challenging. However, some steps are almost always relevant:

  1. Check to see if you need to register for VAT in a specific country to get your refund. 
  2. Submit an original VAT tax invoice to the tax authorities in the expense’s country of origin. So if you traveled to Spain for a work event, you would submit the invoice to the Spanish authorities.  
  3. Use the application form in the target country’s language. So if you are applying for VAT reclaim from Spain, the application must be in Spanish.  
  4. If the refund request is accepted, you can expect to receive the reimbursement within three to twelve months. 

GST and VAT Compliance with Your ERP

Most major ERPs offer essential VAT and GST tracking options. This can include the ability to set up tax area codes, tax Group Codes, GL account assignments to GST/ PST, and more.

Some popular enterprise resource planning software that offers VAT and GST functions include:

Automating VAT/GST Calculations

Automating VAT and GST calculations reduce time wasted on repetitive tasks and save money due to errors and corrections. The right ERP integrations seamlessly automate calculations and offer comprehensive customization. 

For example, Gorilla Expense’s VAT/GST capabilities include:

  • Listing the VAT or GST amount(s) for an expense
  • Auto-calculating VAT/GST amounts based on the type of expense and location
  • Saved related receipt for each transaction that includes VAT/GST companies
  • Multiple fields for different rate categories, based on country-specific requirements

So, what does this translate to in practice? With Gorilla Expense, assuming the ERP is Microsoft Dynamics 365, the process of accounting for VAT/GST/PST looks like this: 

  1. GST/VAT rules are configured in Gorilla Expense. This includes the tax area, group, and general ledger (GL) codes. 
  2. After entering an expense, GST/PST/VAT is automatically calculated in the designated fields.  
  3. The integration shows the tax area codes, group codes, and GL codes as they are sent to the main ERP. 

For more detail, let’s look at how easy it is to add specific tax rates in Gorilla Expense and how they appear in Business Central: 

Creating a Tax Rate with a GL Code in Gorilla Expense

As you can see below, the tax rate can be linked to expense types and the relevant state/province. Let’s call this expense type Web Site and IT Expenses for our example. We have enabled GST and PST and also specified the corresponding GL accounts associated with GST and PST.

A screen capture of how to create a tax rule with Gorilla Expense

When your employee adds a new expense with the same expense type, in this case, Web Site and IT Expenses, the tax rate will be auto-calculated.

VAT and GST for expense reporting, screen cap of a autocalculation.

Upon integrating the above expense with Business Central, two additional lines will be created for GST and PST with the corresponding GL accounts defined on the tax master.

A screen capture of the calculation in the General Ledger

As an alternative to creating additional tax lines, we can also specify the Tax Area Code and Tax Group code while sending data to Business Central. See below:

A screen cap of the general ledger and the generated tax area codes.

 

VAT/GST Without the Hassle

An expense reporting integration can’t handle VAT or GST reclaims from start to finish —but they can include these calculations to streamline your overall expense reporting process. You’ll also want to work with an automated expense reporting solution that provides:

  • Employee self-service for capturing and storing receipts
  • Multiple currency support
  • Custom cost allocation per project, job, or another category
  • Immediate expense report generation
  • Touchless credit card reconciliation
  • Accurate mileage tracking
  • Records of every change made to each expense
  • Multilevel approval

Gorilla Expense offers all of these capabilities with an easy-to-use, low-learning curve program. To find out how simple but effective Gorilla Expense’s expense reporting software works in real-time, book a demo with us today.  To learn more, visit our expense reporting best practices blog

 

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