FAQ: GST and software - questions answered
James Page is not a world-famous guitarist renowned for his work with Led Zeppelin. He is Microsoft Dynamics AX Service Line Lead for Intergen. Here he offers sound advice on GST and software and answers the most common questions about the upcoming changes that affect everyone.
On the face of it, the GST rate increase is easy to understand: a percentage increase from 12.5% to 15% on October 1st. Yet as many organisations are starting to realise, when it comes to their office software systems, things are actually more complex and a set of common questions is emerging.
One of the most commonly asked questions is seemingly very obvious - which systems in our organisation handle GST calculations? You would immediately think; the accounting system or forward-facing sales systems of course. But, in reality many organisations may have other systems dealing with GST calculations that are less obvious.
The fact is that with the deadline in place organisations, no matter what size or sector, can no longer ignore the need to understand how the change impacts their business - particularly the complexities of managing that change from a systems perspective.
Following are some of the key concerns for organisations and how to address them:
Which systems handle GST calculations?
This needs careful consideration. As well as your general office accounting system, there are likely to be other systems in the office which deal with GST such as Point of Sale (POS) systems used for scanning bar codes, product information management systems, websites, customer quotation systems, ad hoc spreadsheets etc. Organisations must carry out checks to ensure these are set up to cater for the new rate.
Can you change the GST rate on your systems or is it hard-coded?
This has obvious implications with regard to how easy it may be to bring every system up to date when the new rate comes into effect. If your system vendor has specified in the software that the rate is set at 12.5%, how does this figure get changed? Is the change made in only one place, or must multiple changes be made? Some systems refer to a single setup source however older, legacy applications can have hard coded GST rate calculations which require changing and rigorous testing before release on the 1 October.
Can you change the GST rate retrospectively?
Why is this important? This has two implications, firstly, can businesses enter the new rate with an effective date and then on 1 October, your systems just assumes that rate or will an organisation need to perform a cut-over on the 1 October. Naturally this makes the cutover process more critical.
Secondly, in the transitional period after 1 October, organisations will have to deal with situations which may involve both rates as the old 12.5% rate will still be required for some transactions. When entering these transactions in your new system you will need to manually override the code displayed in the “GST” column with the appropriate new code.
Will open purchase and sales order lines be updated by the GST rate?
Changes to the GST rate should impact GST calculations for un-invoiced sales and purchase orders. In some systems, GST rates are brought onto the purchase and sales order lines therefore creating inaccurate calculations at point of invoicing. Do you therefore need to force an update in your system or do you need to perform an update to the data?
Again, this has implications with regard to how easy or complex it may be to update and maintain your systems.
Does your system(s) manage credits for purchase and sales? Will your system(s) be able to credit back at the 12.5% GST rate for credits to orders raised prior to the GST rate change?
A more complex scenario but one that many organisations will face. An item purchased before 1 October will have included 12.5% GST in its price. If this item needs to be returned after 1 October, and the amount is credited, then it’s important to manage this credit at the 12.5% rate and not the new 15% rate. Businesses will need to ensure that dual rates are maintained during a specific period to manage the credit process and make changes to front end sales systems so that those applications can recognise this specific refund logic.
Will your systems require updates to existing, recurring customer orders, laybys and deposits?
Managing transactions such as subscriptions, deposits, laybys, rebates and volume discounts will require careful attention. Existing subscriptions will require updating with new GST rates if there is a contract of supply where invoices are raised monthly. However different treatment will be applied to subscriptions that are invoiced as a lump sum at the beginning of the period and treated as a monthly debt.
Similar consideration needs to be paid to other amounts that are recorded as prepayments, debtors, and accruals in systems. What treatment needs to be applied to these sums and what updates are required to your existing data? In some cases, systems can manage these changes automatically; however other systems and manually-managed spreadsheets will require scripts and/or manual manipulation.
Ultimately, it is essential that organisations ask themselves these questions and to put a plan in place. With just over three months to go, this is an issue that requires urgent consideration.
Intergen will be running a Twilight seminar on GST and software. For more information on venues and dates hit this link.