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Self-Assessed Taxes and Extra Charges

Self-assessment of a tax is the process by which an organization tracks its tax liability and periodically remits a tax payment directly to the government. Organizations that self-assess their tax liability do not pay taxes directly to the supplier.

Self-assessment is not necessarily absolute. In some cases, an organization pays taxes directly to authorized suppliers and self-assesses their liability on purchases from suppliers not authorized to collect the tax. For example, this is common in Canada where companies pay taxes to a supplier in the same province and use self-assessment for out-of-province suppliers.

You can also set up extra charges that are remitted to a third party rather than the ordering supplier.

This topic discusses concepts related to setting up and working with self-assessed taxes, and extra charges remitted to third parties.

Non-remitted Taxes and Invoices

Non-remitted taxes can be included on invoices as a tax line. Non-remitted tax lines are excluded from the line totals for invoice balancing purposes; the tax is not being remitted to the supplier, therefore the value is not included in the invoice’s value.

Extra Charges

You can set up extra charges as not being remitted to the ordering supplier. Typically, you would use this setting for charges that are paid to a third party (for example, charges that are related to insurance or broker fees). Third-party extra charge lines are automatically included on the invoice in the same way as remitted extra charges are included. Non-remitted extra charges are not included in the invoice’s total value.

Tax Examples

The sections that follow describe the four different scenarios for taxes:

•	A self-assessed tax that is included in the loaded costs

•	A self-assessed tax that is charged directly to an account

•	A tax that is remitted to the supplier and is being included in the loaded costs

•	A tax that is remitted to the supplier and is being charged directly to an account

The following information is described for each example:

•	The work order’s requirement price and planned costs

•	The value charged to the work order as a result of the receipt

•	The results of the invoice entry and posting:

•	The value of the supplier’s invoice

•	A summary of the invoice’s lines and values

•	The value by which the work order costs are adjusted

•	The financial system entries generated

The scenarios are based on the following situation and processing cycle:

•	A work order is planned with a requirement to purchase a pump. The pump has a purchase price of $1,000 and is taxable.

•	The tax rate is 10%.

•	A purchase order is placed to order the pump. There is a freight charge of $100 associated with the purchase. The freight charge is identified on the PO. The freight charge is remitted to the supplier and is also included in the work order’s loaded costs.

•	A receipt is entered to receive the pump.

•	An invoice is entered to pay for the pump. The invoice price for the pump is $1,100. For the sake of these examples, assume this increase is within the set allowable tolerances.

The table below summarizes the four scenarios:

Scenario	Self-assessed (i.e. Tax is not remitted)	Included in loaded costs
A	Yes	Yes
B	Yes	No
C	No	Yes
D	No	No

Scenario A: A self-assessed tax that is being included in the loaded costs

Work order price for the pump	$1,000
Work order planned costs (loaded costs)	$1,100	$1,000 for the pump, $100 for tax
PO Line loaded costs	$1,200	Includes $100 freight
Receipt costs charged to the work order	$1,200
Invoice Amounts:
Pump	$1,100	$100 price increase
Freight	$100
Tax	$110	10% of $1,100
Invoice Total	$1,200	$1,100 for the pump with the price increase plus freight
Value by which the work order costs are adjusted	$110	$100 price increase plus the related $10 tax increase
Total value charged to the work order for the pump	$1,310

Invoice Financial System Entries	Debit	Credit
AP account		$1,200
RNI clearing	$1,200
Work order cost adjustment	$110
Tax expense	$0
Tax accrual		$110
Totals	$1,310	$1,310

Scenario B: A self-assessed tax that is being charged to an account

Work order price for the pump	$1,000
Work order planned costs (loaded costs)	$1,000	Excludes the tax since it is being charged to a separate account
PO Line loaded cost	$1,100	Excludes tax, includes freight
Receipt costs charged to the work order	$1,100	Tax charge is not included in the work order costs
Invoice Amounts:
Pump	$1,100	$100 price increase
Freight	$100
Tax	$110	10% of $1,100
Invoice Total	$1,200	$1,100 for the pump with the price increase plus freight
Value by which the work order costs are adjusted	$100	$100 price increase only, tax is being charged to a separate account
Total value charged to the work order for the pump	$1,200	$1,100 for the pump with the price increase plus freight

Invoice Financial System Entries	Debit	Credit
AP account		$1,200
RNI clearing	$1,100
Work order cost adjustment	$100
Tax expense	$110
Tax accrual		$110
Totals	$1,310	$1,310

Scenario C: A remitted tax that is being included in the loaded costs

Work order price for the pump	$1,000
Work order planned costs (loaded costs)	$1,100	$1,000 plus $100 for tax
PO Line loaded cost	$1,200	Includes freight
Receipt costs charged to the work order	$1,200	$1,000 for the pump, $100 for freight, $100 for tax
Invoice Amounts:
Pump	$1,100	$100 price increase
Freight	$100
Tax	$110	10% of $1,100
Invoice Total	$1,310	$1,100 for the pump with the price increase, plus freight and tax
Value by which the work order costs are adjusted	$110	$100 price increase plus the related $10 tax increase
Total value charged to the work order for the pump	$1,310	$1,100 for the pump with the price increase, plus freight and tax

Invoice Financial System Entries	Debit	Credit
AP account		$1,310
RNI clearing	$1,200
Work order cost adjustment	$110
Tax expense	$0
Tax accrual		$0
Totals	$1,310	$1,310

Scenario D: A remitted tax that is being charged to an account

Work order price for the pump	$1,000
Work order planned costs (loaded costs)	$1,000	Excludes tax
PO Line loaded cost	$1,100	Excludes tax, includes freight
Receipt costs charged to the work order	$1,100	Tax charge is not included in the work order costs
Invoice Amounts:
Pump	$1,100	$100 price increase
Freight	$100
Tax	$110	10% of $1,100
Invoice Total	$1,310	Includes price adjustment, tax and freight
Value by which the work order costs are adjusted	$100	$100 price increase
Total value charged to the work order for the pump	$1,200	$1,100 for the pump with the price increase plus freight

Invoice Financial System Entries	Debit	Credit
AP account		$1,310
RNI clearing	$1,100
Work order cost adjustment	$100
Tax expense	$110
Tax accrual		$0
Totals	$1,310	$1,310

Extra Charge Examples

Like taxes, there are four different scenarios for extra charges:

•	An extra charge can be paid to a 3rd party and be included in the loaded costs.

•	An extra charge can be paid to a 3rd party and charged directly to an account.

•	An extra charge can be paid to the ordering supplier and be included in the loaded costs.

•	An extra charge can be paid to the ordering supplier and charged directly to an account.

The example described below covers all four scenarios. The example is based on the following situation and processing:

•	A work order is planned with a requirement to purchase a pump. The pump has a purchase price of $1,000.

•	There are four extra charges associated with the purchase. All of the extra charges have been identified on the supplier's price for the pump. Therefore, the extra charges are reflected starting with the work order costs:

•	Freight $100 - remitted and included in loaded costs

•	Insurance $60 - not remitted and included in loaded costs

•	Pallets $40 - remitted and expensed directly to an account

•	Broker $30 - not remitted and expensed directly to an account

•	A purchase order is placed to order the pump. The PO is placed as planned on the work order.

•	The pump is received.

•	The pump is invoiced as ordered.

Work order price for the pump	$1,000
Work order planned costs	$1,160	Pump price plus freight and insurance
PO Line loaded cost	$1,160	Pump price plus freight and insurance
PO Line total cost	$1,230	Pump price plus all four extra charges
Receipt costs	$1,160	Loaded PO price
Invoice Amounts
Pump	$1,000
Freight	$100	Remitted, loaded
Insurance	$60	Not remitted, loaded
Pallets	$40	Remitted, expensed
Broker	$30	Not remitted, expensed
Invoice total	$1,140	Pump price plus freight and pallets
Value by which the work order costs are adjusted	$0
Total value charged to the work order for the pump	$1,160

Invoice Financial System Entries	Debit	Credit
AP account		$1,140
RNI clearing	$1,160
Work order cost adjustment	$0
Pallet expense	$40
Broker expense	$30
Broker accrual		$30
Insurance accrual		$60
Totals	$1,230	$1,230

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