Understanding VAT Rates on Ledger Accounts

Introduction

In accounting systems, ledger account are essential for tracking ledger entries. Each ledger entry line is recorded in a specific ledger account, which helps businesses manage their accounting efficiently. Value Added Tax (VAT) is a crucial component of this process, as it affects the financial statements and tax obligations of a business.

Identifying Ledger Accounts by VAT Rate

For every applicable VAT rate, a distinct ledger account item is typically assigned with a unique ID. This ensures that ledger entries are recorded accurately based on the VAT rate applied. For instance, you might have separate ledger accounts items for VAT rates of 0%, 5%, and 10%.

Practical Example

To create a ledger entry line on ledger account number 706000000009 with a VAT rate of 20%, here are the steps to follow :

1. Check that the ledger account exists on Pennylane using this endpoint and this filter :
   [{"field": "number", "operator": "start_with", "value": "706000000009"}]
2. If it exists, several items will come up in the response for this ledger account :

   {  
          "total_pages": 1,  
          "current_page": 1,  
          "per_page": 20,  
          "total_items": 3,  
          "items": [  
              {  
                  "id": 1326475509,  
                  "number": "706000000009",  
                  "label": "Prestations de services",  
                  "vat_rate": "FR_200",  
                  "country_alpha2": "any",  
                  "enabled": true  
              },  
              {  
                  "id": 1326475560,  
                  "number": "706000000009",  
                  "label": "Prestations de services",  
                  "vat_rate": "any",  
                  "country_alpha2": "any",  
                  "enabled": true  
              },  
              {  
                  "id": 1326475596,  
                  "number": "706000000009",  
                  "label": "Prestations de services",  
                  "vat_rate": "exempt",  
                  "country_alpha2": "any",  
                  "enabled": true  
              }  
          ]  
      }
   

   
   
   
3. In order to send ledger entry lines with 20% VAT rate, the ledger_account_id 1326475509must be selected here as it is associated with a FR_200 vat_rate value (20%)
4. If the ledger account doesn't exist in Pennylane, you can create it using this endpoint and indicate the VAT rate associated using the vat_rate field

Consequences

If a ledger account with any VAT rate is used instead of a precise VAT rate (like FR_200 for example), a N/A value will be indicated on Pennylane interface (in red below) whereas a precise VAT rate will be properly displayed (for example FR_200 / 20%, in green below) :