XBert Type: Standard
Accounting Software: Xero
Country Restriction: Australia only
Risk Type: Tax Risk
Business Function: Compliance
Overview
This XBert finds accounts that are set up as non-GST (for example GST Free, GST Exempt, BAS Excluded, No GST or Tax Excluded) but that still have GST showing up against them. When that happens, GST may not be charged or claimed correctly, which can leave the business with a tax shortfall to make good later.
What it does
It looks at the income and expense accounts in your ledger, along with the bills and invoices posted to them. When an account is set up as non-GST, but transactions on that account are still carrying a GST amount, XBert flags the account so you can check whether the tax setting is correct.
How it works
XBert raises this alert when an account that is treated as non-GST has bills or invoices that still carry a tax amount. It looks at activity from the start of the month three months ago up to today, so it focuses on recent transactions. An account is included when either of these is true:
the account's own tax setting is a non-GST type, such as GST Free, GST Exempt, BAS Excluded, No GST or Tax Excluded; or
the tax setting on the transaction itself is one of those non-GST types.
To keep the alert meaningful, XBert adds up the tax for each account, month by month, and only flags it when that total is more than $5 (or less than minus $5). Tiny amounts are ignored. Only approved, paid or submitted bills and invoices are counted, so unfinished drafts are left out. Bank accounts and the standard accounts payable and accounts receivable control accounts are also excluded, because a non-GST setting is normal for those.
Example/Use Case
Zoe changes the default tax setting on the standard Sales account from "GST on Income" to "BAS Excluded". John has used this Sales account many times before, so he raises a new invoice for $2,200 against it, not realising GST will no longer be added. The customer receives the invoice without GST, even though the business is required to charge it. XBert flags the Sales account because it is set up as non-GST yet still has GST activity against it. John corrects the account's default tax setting back to "GST on Income" and reissues the invoice with the correct GST, avoiding a shortfall the business might otherwise have had to fund itself at audit time.
Accounting software
This XBert runs on Xero.
Which countries it supports
This XBert applies to Australia only, where GST and BAS reporting rules apply.
Processes
Business area: Compliance and bookkeeping. To resolve this XBert:
Open the flagged account and review how it has been used over the past few months.
Check the account's default tax setting. Decide whether it should be a GST setting (for example "GST on Income" or "GST on Expenses") rather than a non-GST setting such as "GST Free" or "BAS Excluded".
If the account's default tax setting is wrong, update it so future transactions pick up the correct GST treatment.
If the account is correct but individual bills or invoices have had their tax setting changed to non-GST in error, correct those transactions so the right GST is applied.
Consider whether this is the right account to use at all, or whether a different account with the appropriate tax setting would suit better.
Where GST should have been charged on past invoices but was not, work out the GST owing and discuss with the business and, if needed, your accountant how to correct it.
Once the account and any affected transactions are corrected, mark the XBert as resolved.