First you must enable 'Use VAT/GST' within File --> Preferences --> General.
(Moneydance menu on a Mac)

Then you should set the VAT/GST rate for each category.

You can do this when creating categories within Tools --> Categories.

You can also view and edit all VAT/GST rates through the Tools→VAT/GST Settings menu.
This will display a table where you can enter the tax rates for each category, as well as the category to which the taxes will be assigned.

Once a category has been assigned a tax rate and tax category, any new transactions that are assigned that category will be split into two parts; the tax part, and the normal income/expense part.
The tax part of the transaction will be assigned to the tax category.
This splitting of transactions is subject to the "Apply VAT/GST" check box in the transaction editor remaining checked.


If you have a large number of transactions that have not been split you can use the Tools→VAT/GST Transactions menu to display all of the transactions to which VAT/GST may apply (according to your settings) so that you can quickly set the rate or tax amount for each one.

This window will only display VAT/GST transactions for one account at a time, so you will need to repeat the process for each bank account, credit card, etc which has VAT spending.