[BASIC FEATURES] Tax closing

Summary

This video explains the concept of tax closing, a legal process for businesses to settle taxes either monthly or quarterly. It covers how to calculate the balance between taxes received from customers and taxes paid to vendors, and how to submit the tax report. The video also demonstrates the process of settling tax accounts, using VAT accounts as an example. The steps for automating this in Odoo software, including setting up tax configurations, closing journal entries, and sending reports to tax authorities, are also detailed.

Takeaways

• 📊 Tax closing is a necessary process for companies to submit their tax reports, either monthly or quarterly.
• 💡 The tax closing involves calculating the total taxes received from customer invoices and paid through vendor bills, determining if more tax needs to be paid or refunded.
• 📋 In the software (ODOO), taxes paid and received are accumulated in the tax report using the tax grid for proper calculations.
• 🔄 The tax closing entry is crucial for settling tax accounts and transferring any remaining amounts into the VAT current account.
• 🔍 Accounting-wise, customer invoices and vendor bills increase the tax paid or received in respective tax accounts, which need to be settled at the end of the period.
• 📈 At the end of each period, tax accounts should be balanced to zero, with the remaining difference moved to the VAT current account, representing either a payable or receivable amount.
• 🔧 The periodicity of tax reports can be configured within the software, accommodating different reporting requirements like monthly, quarterly, or even bi-monthly.
• 📑 You can generate a tax closing journal entry automatically through the tax report function, ensuring that all tax accounts are settled correctly.
• ⚠️ Once the tax closing entry is posted, a tax lock date is set, preventing further changes to the tax report for that period.
• 🌐 The software supports direct submission of tax reports to certain legal authorities' websites (e.g., HMRC in the UK) or allows for exporting the necessary XML files for manual submission.

Q & A

What is tax closing?

Tax closing is the process of settling all tax accounts at the end of a reporting period (monthly or quarterly) by calculating the total taxes received from customer invoices and the taxes paid on vendor bills. The difference determines if you need to pay or reclaim taxes.

How does a company determine whether to pay additional tax or reclaim tax during tax closing?

A company compares the total tax received from customer invoices with the total tax paid on vendor bills. If the tax received exceeds the tax paid, the company needs to pay the difference to the government. If the tax paid is higher, the company can reclaim the excess tax.

What role do tax credits play in tax closing?

Tax credits are recorded in the tax configurations and are used to compute the total tax amounts in the tax report. The tax closing entry ensures that these amounts are settled in the tax accounts.

What happens to the tax accounts during the tax closing entry?

During tax closing, the tax accounts are settled to ensure their balances are zero. The remaining amount, representing the difference between taxes paid and received, is transferred to the VAT current account.

What is the VAT current account, and when is it used?

The VAT current account records the remaining balance after settling the tax accounts. If a company has received more tax than it has paid, it records the balance as an amount owed to the government. If it has paid more, it records the balance as a receivable.

How does the tax closing process work automatically in Odoo?

In Odoo, the tax closing process can be done automatically through the tax report feature. Once the configuration is complete, the system calculates the closing journal entry, settles the accounts, and transfers the remaining amount to the VAT current account.

What is a tax log date, and why is it important?

The tax log date ensures that no entries affecting the tax report are made after the tax period has been closed. Once the tax report is submitted, the log date prevents any further changes to avoid altering the declared taxes.

Is it possible to change the tax periodicity in Odoo?

Yes, Odoo allows you to configure different tax periodicities, such as monthly, quarterly, or every two months, depending on the legal requirements of the country.

Can Odoo directly send tax reports to legal authorities?

Yes, in some countries, Odoo can directly send tax reports to the relevant authorities. For example, in Belgium, Odoo generates an XML file that can be uploaded to the tax platform, and in the UK, Odoo can send the report directly to HMRC.

What happens if a mistake is found in the tax report after submission?

If a mistake is found in the tax report after submission, it cannot be altered for that period. Corrections must be made in the next reporting period.

Outlines

00:00

💡 Understanding Tax Closing in Odoo

The first paragraph introduces the concept of tax closing, explaining how companies are required to submit a tax report either monthly or quarterly. It discusses that at the end of each period (monthly or quarterly), businesses need to calculate the total taxes received from customer invoices and the taxes paid through vendor bills. The purpose is to determine if additional tax needs to be paid to the government or if a refund is due because too much tax has been paid. The paragraph then elaborates on how Odoo accumulates taxes paid and received in the tax report using the tax grid, and how these amounts are extracted to be submitted to the relevant legal organization. The tax closing entry is essential for settling all tax accounts, and any remaining balance is placed in the VAT current account. Additionally, it emphasizes that taxes should be recorded accurately to avoid discrepancies.

05:03

🧾 Steps for Tax Account Settlement

This paragraph focuses on the practical steps involved in closing the tax accounts at the end of a tax period. It illustrates how to settle the tax received and paid accounts, ensuring their balances are reduced to zero. The paragraph provides a detailed example using a customer invoice and a vendor bill to show the entries in various accounts such as income, receivables, payable, and expense accounts. It then highlights that any remaining difference between taxes received and taxes paid is allocated to the VAT current account. The example includes Belgium-specific account numbers and emphasizes the importance of ensuring that debit entries equal credit entries, maintaining balanced records.

10:05

🔧 Automating Tax Closing with Odoo

The final paragraph discusses the automation of the tax closing process using Odoo. It explains that users do not need to perform the tax closing entry manually because Odoo's tax report feature allows this process to be done automatically. By configuring the system correctly, users can generate a closing journal entry that settles all tax accounts, showing the remaining balance in the VAT current account. It also highlights that, once posted, the tax log date is updated, preventing any modifications that could impact the closed period's tax report. Additionally, it mentions that for certain countries, such as Belgium, the tax report can be directly exported to the legal authority's website in XML format, and for the UK, there's a direct connection with HMRC.

Keywords

💡Tax Closing

Tax Closing refers to the process at the end of a fiscal period where a company summarizes its tax liabilities and obligations. It involves calculating the total taxes collected from customers and the taxes paid to vendors to determine if the company owes more taxes or is due a refund. In the video, it is mentioned that this is a legal requirement that must be done monthly or quarterly, and it is crucial for settling tax accounts and ensuring accurate financial reporting.

💡Tax Report

A Tax Report is a document that outlines the taxes collected and paid by a company over a specific period. It is a legal requirement and is used to determine the net tax amount owed to the government. The video script explains that the tax report is generated monthly or quarterly and includes details of all customer invoices and vendor bills, which are crucial for tax computation.

💡Tax Credits

Tax Credits are amounts that can be used to offset a company's tax liability. They are part of the tax configuration in accounting software and are used to compute tax amounts in the tax report. The video mentions that tax credits are accumulated in the tax report, which helps in computing the total tax amounts that need to be reported and paid or claimed back.

💡VAT Current Account

The VAT Current Account is an account used in accounting to record the remaining balance of VAT after the tax closing process. If a company has collected more VAT than it has paid out, the difference is recorded in this account. The video script explains that any remaining amount after the tax closing entry should be put into the VAT current account to ensure that the tax accounts balance to zero.

💡Tax Log Date

The Tax Log Date is a feature in accounting software that prevents new entries from affecting closed periods' tax reports. Once the tax closing entry is posted, the tax log date is set to ensure that no further entries can be made that would impact the tax report for that period. The video emphasizes the importance of this feature to maintain the integrity of the tax reporting process.

💡Customer Invoice

A Customer Invoice is a bill issued to a customer for goods or services provided. It includes the tax amount collected from the customer. In the context of the video, customer invoices are a key component of the tax closing process as they contribute to the total tax collected, which is then reported and used to settle the tax accounts.

💡Vendor Bill

A Vendor Bill is a bill received from a vendor for goods or services purchased by a company. It includes the tax amount paid to the vendor. The video script mentions that vendor bills are considered during tax closing to determine the total tax paid, which is then compared with the tax collected to find the net tax amount due.

💡Tax Configurations

Tax Configurations are the settings within an accounting system that define how taxes are calculated and reported. They include tax rates, tax credits, and other parameters that affect tax calculations. The video explains that these configurations are crucial for computing all the tax amounts in the tax report and ensuring accurate tax reporting.

💡Closing Journal Entry

A Closing Journal Entry is an accounting entry made at the end of an accounting period to transfer the balances of various temporary accounts to permanent accounts, such as the VAT current account. The video script describes how this entry is used in tax closing to settle the tax accounts and record any remaining tax amount in the VAT current account.

💡Legal Organization

The Legal Organization in the context of the video refers to the government agency or department responsible for tax collection and management. Companies must submit their tax reports to this organization to fulfill their legal obligations. The video mentions submitting tax reports to the legal organization at the end of the period as part of the tax closing process.

💡XML File

An XML File is a type of file used for data storage and transfer, particularly for structured documents. In the context of the video, an XML file can be generated from the tax report to facilitate the submission of tax data to the legal authority's website. The video mentions that for some countries, like Belgium, the tax report can be exported as an XML file for uploading to the tax platform.

Highlights

Introduction to tax closing, the process required for companies to submit their tax reports monthly or quarterly.

Explaining the importance of summing up all received taxes from customer invoices and taxes paid through vendor bills at the end of a period.

Clarification that businesses need to pay or retrieve tax based on the balance between taxes paid and received.

Odoo accumulates taxes paid and received into a tax report using the tax grid, which is configured for each company.

At the end of a period, the tax accounts need to be settled, ensuring the balance is zeroed out before moving the remainder to the VAT current account.

Explanation of how Odoo automatically sets the tax lock date to prevent users from modifying closed periods after posting a tax closing entry.

The video demonstrates a detailed walkthrough of customer invoices and vendor bills entries, explaining the accounting flow of tax received and paid.

Detailed steps on how to settle tax accounts at the end of the period, using an example with customer invoices and vendor bills.

Balancing the debit and credit accounts, and moving the difference to the VAT current account to reflect tax payments owed or refundable.

Explanation on configuring periodicity and tax accounts in Odoo, tailored to specific regional tax rules.

Highlighting the automatic generation of tax reports and how users can configure Odoo to perform tax closing entries efficiently.

Odoo's ability to configure the VAT current account and apply tax lock dates ensures compliance with legal tax requirements.

In some countries like Belgium and the UK, Odoo supports direct submissions of tax reports to government platforms such as HMRC.

Explanation on Belgium-specific legal control points in the tax report, ensuring base and tax amounts match.

Clarifying that tax entries from the period are not automatically reconciled, and it is not recommended to make tax accounts reconcilable.

Transcripts

hello deodorants and welcome to this new

video

about the tax closing what is tax

closing exactly

how do you do it inudo well first

as a company you need to submit your tax

credit tax report it's a legal

requirement and it needs to be done

monthly or quarterly

it means that um at the end of the

period

or it's at the end of the month or the

end of the quarter you need to make the

sum of all the taxes that you've

received

through uh your customer invoices and

the tax that you've paid

through your vendor bills and you need

to make the sum of that and see if you

need to pay

more tax to the government or indeed you

need to retrieve some because

you've paid too much throughout the

period

in a do we accumulate the taxes paid and

received in the tax report

thanks to the tax grade so remember that

in the tax video

uh i told i talked to you about the tax

credits that are in the tax

configurations

it is those are there so that we can

compute

all the tax amounts in the tax report

and

through the tax report we are going to

um

extract the um the amounts and to be

able to submit them to the

legal organization responsible for taxes

at the end of the period the tax closing

entry is necessary to settle all the tax

accounts and put the remaining amount in

the vat current account

so accounting wise what happens is that

every time you register a customer

invoice or vendor bill

or any entry with taxes in it um

you're gonna you're gonna increase the

amount in the tax accounts

so tax paid or tax received at the end

of the period you need to settle these

accounts so make sure that

the the balance is down to zero and the

of course there's going to be a

difference

because it never happens that you pay

the exact

amount of tax as the tax receives that's

a school use case

and the remaining amount should go in

the vet current account

when the entry is posted in a due

automatically you're going to have the

tax log day sets to make sure that you

don't

impact closed periods so let's just see

together what i mean when i talk about

uh settle the tax accounts and the tax

closing entry

so i'm just going to jump into my little

excel and show you

how what happened what happens basically

in the accounting so you're going to

have

our customer we're going to have a

customer invoice for example

and we're going to have our receivable

account

and our

income account and our tax

received which is uh going to be

the account 4510 in belgium so i've sold

for

a hundred so i'm gonna have on the

credit side because

the income account uh if you want to

increase the value remember

it's a credit it's going to increase on

the credit side

you're going to have the 21 euros

because you've sold with a 21

rate on the tax received

and finally the the total amount would

go on the debit side for the receivable

account

same thing for vendor bill so we're

going to have uh the account

payable the

tax paid account

and the inc expense account

okay so you're going to have this the

entry so the vendor entry

and same thing here but we're going to

increase uh

let's say we have uh sold for 300 here

so here in that case we're going to make

300 times

0 21. so for 63 and the total of it

would be

here plus the sum like this

so you're gonna have um a vendor bill

here so you see that

in the account what happened if we put

our little t's and see what happens

exactly

i'm gonna have the account four thousand

seven thousand

forty five ten i'm just going to copy

paste

this you have all the accounts

six thousand and uh 44

okay so if i just fill in the

information in the cheese instead

what's going to happen is that on my

receivable i'm going to have the

121 100 in my

income account and the 21 in my tax

account so the all

these two are my tax accounts okay

then i'm gonna have um let me just color

these two

to see that these match together

here and then afterwards we're going to

have a vendor bill so

on the uh here on the debit side we're

going to have the account

6 000 we're going to have then

the um tax on the tax payer i've

uh it was the wrong account

so here this should go there instead

sorry a little mistake and finally the

payable account on the credit side for

306

euros we're gonna color all this

together

like this okay so this is what happens

at the end of the period we have all our

accounts

opened what we need to do for the tax

closing entry

and this is uh what i said earlier we

need to settle

the tax account so we need to make sure

that those two accounts are down to zero

okay

uh so the tax closing entry is going to

take again

the same accounts okay and we're going

to take

uh so this one is tax received and this

one is

tax paid okay

we need to settle the account so i'm

going to put

the contrary so the same amount but on

the credit side

for uh the tax paid account and here the

tax

received account in here so that at the

end

the balance is down to zero here

okay that's the most important thing for

the tax closing entry

but of course if we if we do this on the

tax risk

on the tax paid we're going to have 21

here and on tax receipt we're going to

have

63. so you see that the entry is

unbalanced

because we've received more tax than

we've paid them so

it's important that the the entry should

be balanced

uh remember that debit should always

equal credit so we're missing

an amount on the debit side uh which

corresponds to

42 euros and this amount should go in

what we call the v80 current

account and if

here in our case we need to repay some

tax to the government because we've

received more than we've paid

um so in that case it's going to be a

the

account 4512 and in the case that uh

where we need to retrieve some money

from the government it would be the

account

41 12. but this is belgium specific

so um just remember that uh

you need to put the remaining remaining

amount in a current account

and your clients of course will know

what you're talking about

so here i'm going to put vt current

account

and i'm just going to duplicate this

here and put the remaining amount

in here okay so when uh not 63 42.

so this is how you make

a tax closing entry this is how it works

accounting wise so

if you basically you are settling the

account so

all these are down to zero for the new

period but

the remaining amount is supposed to go

in the vat current account

uh to make sure well that you afterwards

you'll need to pay of course this amount

to the tax organization let's jump back

in audio

and see how this works how you can

configure this

so i've talked about the vt current

accounts and the tax log date

um let's use a use case just to

illustrate that so for

our fping cars company we need to define

the periodicity information so for the

frequency

uh we need to um close the year uh

we need to close the period quarterly

the journal should be tax closing

journal

and the current account should be 41 12

and 45

12. so inodeo

how do we translate that you can define

the periodicity of the tax

report in the settings so you should go

in the settings of the application

and in here you have the tax return

periodicity so we're going to switch to

quarterly

and in the journal we're going we need

to create one so

first i'm going to create a new journal

for the tax closing journal instead okay

so i'm gonna put

tax closing miscellaneous

and just put tax as a short code

let's go back to the settings quarterly

and tax closing here save

so that's the first um configuration

that you need to do

second you see that under this uh

configuration you see you have

configure your tax accounts and that's

really important before going live

because uh that's there that you'll put

your current

tax account payable and receivable okay

so uh you see that it's already

configured for belgian localization but

sometime it's not so it's important that

you fill this in

um so you have the current account for

the payable and the receivable side so

everything is already configured for me

and you see that this information is

filled in by tax group

so you see that it's based on each

uh percentage its rates uh so because in

some countries depending on the rate you

can have a different payable

receivable account involved so that's

that's it for me for the configurations

uh when you want to fill in this closing

tax closing entry you don't have to do

this

manually you can do this automatically

through the tax report

so when i go in the tax report or here

i have the belgian tax report ready and

i can decide to click

on closing journal entry so by doing so

if i do this since i've configured this

properly

you see that it's going to

settle my account so i have my vt

payable because i had some

invoices ready already in my system

some vt recoverable and you see at the

bottom here

you're gonna have the current account

for the

settlement so the remaining amount so

all these are

how we settle the accounts for the vat

because we had some open items in the

system

and then the difference between um the

difference between the two

will go in the current account in here

once you post this entry what's going to

happen

is that first uh well all your accounts

of course are going to be settled but

second

you're going to have a tax log date set

up so if i decide to post the entry

if it's yeah okay so i've posted my

entry but in

my log dates here you see that

in the tax log date i have now the the

date

for the end of the period because um you

need to make sure that

any no user can add new entries that

will impact the tax report because once

you've declared the tax report

then afterwards um you can't you can't

alter it you can't update it

if you have made a mistake you need to

correct it in this the next period

okay guys um frequently asked question

for one of our child companies in the uk

the tax periodicity needs to be done

every two months is it possible in ado

yes it is

because if you go back in the system and

you've probably seen it already

in the settings you are

can actually choose multiple

periodicities uh

most of the time in europe it's going to

be monthly or quarterly

uh but in some countries they need a bit

more uh

than different periodicities so you have

indeed

more than those two possibilities

in belgium the tax report has mandatory

legal control points

do those exist in urdu so what is a

control point it's basically going to

say okay this line should be

the percentage of this line because in

the tax report

uh you need to declare both the base and

the tax amount so the base amount if

you've sold for 100

and you have a tax of 21 the base is

going to be the hundreds and the tax

amount of course is going to be 21

and you should declare both uh both

amounts

and in the belgian uh in the belgian

um tax report these there are these

control points and

if those are not respected properly then

you will see here

a um error message saying hey pay

attention because this control point is

not respected

when the tax closing entry is posted are

the tax entries from the period

automatically reconciled no it isn't

there is actually no point in that

because the accounts are not

reconcilable

you can put them in reconcilable but i

do not advise it because uh remember

that if you do that

you're going to see the tax amounts

appearing in uh

your reconciliation interface and it's

not something that i should

i would recommend can we send directly

from or do the tax report to the legal

authority's website

uh for some countries you can so for

belgium it is possible

because you can uh export the xml

so by clicking on this you're gonna have

um

you're gonna have the xml that's been

generated

given the fact that you have the proper

information filled in for your company

um and you can just upload it into the

right uh to the

the tax platform for the uk for example

you're going to have a connection to

hmrc

which is um also the

tax platform and it will send directly

the tax report

to the platform you won't even have to

upload it so depending on the country

you're going to be able to check to see

if there is

an xml file or a connection with the tax

website i advise you to look at the

documentation

on odu just to see if the local

localization provides this kind of

service on

that's it for me in this video thank you

all for watching and see you in the next

topic