GST options for Invoice Items included in External Invoices

This article provides detailed information relating to options for NDIS Financial Plan Management organisations to manage the GST on External Invoices received from Service Providers.

Managing GST across multiple integrated software systems can be a very difficult task. This article is designed to:

1. Explain the process of handling GST items when entering External Invoices into SupportAbility
2. Explain the inherent issues associated with GST and rounding calculations so that these issues can be avoided 

Audience: Finance Team

Summary

The following list summarises the content within this article. Click on the links below to take you to the relevant sections:

• Terminology
• Why SupportAbiity uses the Inclusive Rate
• Service Provider Invoice Variations
• GST options when entering invoices
• GST Rounding Issue
  
  • Inclusive Rate displayed on each invoice line
  • Exclusive Rate displayed on each invoice line
• External Invoice batch - Accounts Receivable Export

Terminology:

Before we get started, its important to explain the terminology used in this article:

• Exclusive Rate: a rate or price for each line item of the invoice that excludes GST
• Inclusive Rate: a rate or price for each line item of an invoice that includes GST (Exclusive Rate + GST per item).

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Why SupportAbility uses the Inclusive Rate

SupportAbility primarily uses the Inclusive Rate because:

1. An Accounts Payable invoice batch can be generated from SupportAbility, including the invoices from Service Providers, entered into the Client's NDIS FPM tab. Service Providers are paid at the Inclusive Rate.
2. SupportAbility needs to generate a matching Accounts Receivable invoice for the NDIA (which will later be included in the NDIS Bulk Payment Request) and the NDIA must reimburse the payment request at the Inclusive Rate. The amount paid to the Service Provider and the amount claimed from the NDIA need to match for compliance purposes.
3. The NDIS Bulk Payment Request is generated from SupportAbility and the MyPlace Provider Portal only accepts and processes Inclusive Rates.

The Exclusive Rate serves no value for the purposes of NDIS Financial Plan Management.

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Service Provider Invoice Variations

Unfortunately, the  Australian Taxation Office's rules for invoice formatting leave a lot of scope for variation. As an NDIS Financial Plan Management organisation you will receive invoices from various Service Providers that display GST information in very different ways.  

Some invoices may display an External Rate for each line item, whilst others may show an Inclusive Rate.  Some will show the GST component on each individual line, whilst others will show the total combined GST value of all items at the bottom.

Suggested Formatting Requirements for Service Provider Invoices

NDIS Financial Plan Management organisations should always require Service Providers to issue invoices that:

1. Show the Inclusive Rate for each item (to avoid the rounding issues explained later in this article).
2. Indicate which items attract a GST and which do not, as this information is required when entering External invoices into SupportAbility.

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GST options when entering invoices

When entering External Invoices into SupportAbility, some of the items on the invoice may attract GST.  As explained, some invoices received may display an Exclusive Rate, whereas others will display an Inclusive Rate. Whilst we highly recommend you only work with Inclusive rates to avoid rounding issues, SupportAbility now allows you to work with both Inclusive and Exclusive rates to address this.

When adding an invoice item to an External Invoice in the client's NDIS FPM tab, first enter the Rate in the Rate field. When entering the Rate, use the Inclusive Rate as shown on the Service Providers invoice, or the Exclusive Rate if the Inclusive Rate is unavailable.  

Once the Rate is entered, SupportAbility needs to know if the invoice item attracts GST, and if so, whether the rate entered is an Inclusive Rate or an Exclusive Rate. Thus there are three GST options to select from:

Not Applicable

Set the GST option to 'Not Applicable' when the item on the invoice is marked as not attracting GST.  This option is selected by default as the great majority of NDIS support items do not attract GST.

Included in Rate (Recommended)

Set the GST option to 'Included in Rate' when the item on the invoice attracts GST, and the invoice displays the Inclusive Rate for each item. This is the recommended way to enter External Invoice items that attracts GST e.g:

Excluded from Rate (Not Recommended)

Set the GST option to 'Excluded from Rate' when the item on the invoice attracts GST, and the invoice DOES NOT show an Inclusive Rate for each item.

WARNING: You'll notice that when the 'Excluded from Rate' GST option is selected, a GST Warning appears.  This is because SupportAbility must use the Inclusive Rate, for the reasons previously outlined, which in this case must be calculated from the Exclusive Rate provided. Unfortunately, the Inclusive Rate cannot always be accurately calculated from the Exclusive Rate. This is widely known as the GST rounding issue.  

The rest of this article is dedicated to explaining the GST rounding issue in more detail and why its important to avoid using Excluded Rates.

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GST Rounding Issue

SupportAbility requires the Inclusive Rate so that it can accurately generate invoice batches in order to pay the Service Provider at the Inclusive Rate, whilst simultaneously claiming the exact same amount back from the NDIS Provider Portal via a Bulk Payment Request. 

Therefore, when an invoice is received from a Service Provider that only displays the Exclusive Rate for each item, SupportAbility needs to calculate the value of the GST that the item attracts and then use the Exclusive Rate plus the GST value calculated,to determine the Inclusive Rate.

Invoice rates are usually rounded to two decimal places when displayed to make them appear neatly as dollars and cents. This rounding action has the effect of removing the detail from the Exclusive Rate required to accurately calculate the Inclusive Rate.

To explain the issue in detail, we'll explore two scenarios:

1. Inclusive Rate displayed on each invoice line (100% accurate)
2. Only Exclusive Rate displayed on each invoice line (affected by the GST rounding issue)

Inclusive Rate displayed on each invoice line

If invoices are received that clearly display the Inclusive Rate, then that Inclusive Rate can be directly entered into Supportability with 100% accuracy, with no need to perform any calculation. 

EXAMPLE: When working with an inclusive rate of $5.00, the calculations may looks as follows:

The important thing to notice here is that all the Inclusive rates and totals are perfectly matched, which is what we need. This match ensures that the Service Provider gets paid the correct amount and that you get reimbursed that same amount by the NDIA ending in a equal balance of $0. 

This is why we encourage organisations delivering NDIS Financial Plan Management services to request invoices from Services Providers that show the GST Inclusive Rate.

Exclusive Rate displayed on each invoice line

The problem arises when invoices with Exclusive Rate are provided because the Inclusive Rate is required. It is not always possible to calculate one from the other accurately due to rates generally being rounded to two decimal places to appear as dollars and cents. This hides the additional decimal information required to make an accurate calculation.

EXAMPLE: When working with an exclusive rate of $4.55, the calculations is as follows:

The important thing to notice here is that all the Inclusive rates and totals DO NOT match.  This would mean that the Service Provider would be paid $25.05, when their invoice is only for $25.00.  It also means that a payment request from the NDIA would be generated for $25.05 when legally, we are only allowed to to claim $25.00 because that is what we were invoiced for by the Service Provider.

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External Invoice batch - Accounts Receivable Export

In closing, we are anticipating the Accounts Receivable exports for External invoice batches (for MYOB AccountRight 2017 and MYOB AccountRight v19) are expected to be released by Oct 2017.

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