1

Overview: Setting up Microsoft Dynamics AX 2009 for United Kingdom (UK) Value-Added Tax (VAT)

Ingeborg Heinrich Support Escalation Engineer Anthea McCarthy Support Engineer Microsoft Customer Services and Support Team Blog: http://blogs.msdn.com/emeadaxsupport/

12/April/2011

(Draft)

2

This document gives an overview of the rules applicable to Value Added Tax (VAT) in the UK and how it can be setup and reported in Microsoft Dynamics AX. Tax codes and groups are suggested for the different possible transactions types; you may find that you do not need every scenario as it will vary for different organizations. (NB – this guide does not include setup of Reverse charge VAT)

Comprehensive information about the administration of VAT can be found on the official website for the British tax authority – HM Revenue & Customs:

http://www.hmrc.gov.uk/vat/index.htm

VAT Rates Once you are registered for VAT, you are required by British law to charge VAT on your sales of goods and

services. You are also entitled to reclaim VAT on goods and services that you have purchased.

There are currently three rates of VAT:

• Standard rate – 20%

• Reduced rate – 5%

• Zero rate – 0% This is not the same as being ‘exempt’ or ‘outside scope of VAT’

There is no VAT charged (or reclaimed) on goods and services that are exempt from VAT or outside the scope of

VAT. For full details, go to www.hmrc.gov.uk/vat/forms-rates/rates/rates.htm

Rate type Rate Examples Notes

Standard

rate

20% All goods and services except those subject to

Reduced or Zero rate

Reduced

Rate

5% Electricity, Fuel, Solar Panels

Zero Rate 0% Books, Children’s Clothing, Plants Considered to be

taxable items but the

rate is 0%

Exempt 0% Insurance, Let Parking space, Postage Stamps Not considered to be

taxable items by law

Outside of

Scope

0% Charitable Donations, Statutory fees fixed by law Items not considered

to be part of the UK

VAT system

3

Accounting for VAT – the VAT Return If you keep your business and VAT records up to date then filling in your VAT Return should be simple. You are

required to fill in and file a VAT Return (form VAT100) at the end of each ‘VAT period’ – usually every three

months. The return tells HMRC:

• The amount of VAT you charged to your customers. This called output tax. • The amount of VAT you paid to your suppliers. This is called input tax.

Values to be reported in the individual boxes

The following text is an extract from the website:

http://www.hmrc.gov.uk/vat/managing/returns-accounts/completing-returns.htm

Box 1: VAT due on sales and other outputs

This is the total amount of VAT you charged on sales to customers

Box 2: VAT due from you (but not paid) on acquisitions from other EU countries

You need to work out the VAT due - but not yet paid by you - on goods that you buy from other EU countries, and any services directly related to those goods (such as delivery charges). Put the figure in box 2. You may be able to reclaim this amount, and if so remember to include this figure in your total in box 4.

Box 3: total VAT due

This is the total of box 1 and box 2 added together. It is the amount of VAT that is due to HMRC.

Box 4: VAT reclaimable on your purchases

This is the VAT you have been charged on your purchases for use in your business. You should also include:

VAT you paid on imports from countries outside the EU

VAT you paid on goods you removed from a bonded warehouse or free zone

VAT due (but not paid) on goods from other EU countries and services directly related to those goods (such as delivery charges) - this is the figure you put in box 2

Box 5: VAT payable or reclaimable

Take the figures from box 3 and box 4. Deduct the smaller figure from the larger one and put the difference in box 5.

Box 6: your total sales excluding VAT

Enter the total figure for your sales (excluding VAT) for the period, that is, the sales on which you charged the VAT you put in box 1. Additionally, you should also include:

any zero-rated and exempt sales or other supplies you made

any amount you put in box 8

exports outside the EU

4

Box 7: your total purchases excluding VAT

Enter the total figure for your purchases (excluding VAT) for the period, including:

the purchases on which you paid the VAT you put in box 4

anything you bought that the reverse charge procedure applies to

any amount you put in box 9

Box 8: the total value of goods you supplied to other EU countries

Put in the total value of goods you supplied to another EU country

Remember to also include this amount in your box 6 total.

Box 9: the total value of goods you acquired from other EU countries

Enter the total value of goods you received from VAT registered suppliers in another EU country

Remember to also include this amount in your box 7 total.

5

This is a screenshot from a document “Beginner's guide to completing your VAT Return online” which can be found on the above mentioned website.

Box 1

Box 2

Box 3

Box 4

Box 5

Box 6

Box 7

Box 8

Box 9

6

Sample Setup of UK VAT in Microsoft Dynamics AX 2009

The following examples are generated in demo company CEE – in company currency EUR unless

otherwise indicated.

Ensure that the country-specific configuration key is activated for the United Kingdom (AX>>

Administration>> System>> Configuration).

1. Setup a VAT Authority:

General ledger>> Setup>> VAT>> VAT Authorities: select the English report layout

2. Setup VAT settlement periods:

General ledger>> Setup>> VAT >> VAT settlement periods

7

For demonstration purposes only create monthly periods (UK VAT periods include three months. In a

real life situation set the Number of units to 3 to reflect quarterly reporting)

3. Setup Item VAT groups

General ledger>> Setup>> VAT >> Item VAT groups

8

4. Setup VAT groups

General ledger>> Setup>> VAT >> VAT groups

IMPORTANT!

For the VAT Group VEU (EU Purchases), on the Setup tab activate the ‘Import VAT/purchase VAT ' field

5. Setup the required ledger accounts. The figure below shows suggested account codes but more

or less detail may be required for different companies.

General ledger>> Chart of accounts. Make sure that field Posting type on the Setup tab is set to

“VAT”

9

6. Setup Ledger posting groups

General ledger>>Setup>> VAT>> Ledger posting groups

7. Create the required VAT codes

General ledger>> Setup>> VAT>> VAT codes

Click the Value button and enter the VAT percentage in the Value field.

NB. It is very important to be sure to set the appropriate Country/region type for each VAT code as

this has a direct effect on how VAT is recorded on the VAT Payment report. In this example the

Country/Region type field has been added to the overview tab for illustration purposes but it normally

resides on the Report setup tab.

8. Add the VAT codes to the appropriate VAT Groups

VAT Code VAT Group Item VAT Group

EXP CEXP FULL

IMP VIMP FULL, ZERO

P20 VDOM FULL

P5 VDOM RED

PEU VEU FULL

PZ VDOM ZERO

S20 CDOM FULL

S5 CDOM RED

SEU CEU FULL, ZERO

SZ CDOM ZERO

10

PLEASE NOTE: In Dynamics AX a VAT code is generated by a specific combination of Item VAT group

and VAT group, both of each type of group must be present in a transaction for a VAT record to be

produced.

In order to find out which combination is setup for a specific VAT code, highlight the VAT code and click

the Inquiries button. Then click Included in Item VAT groups and Included in VAT groups and select the

according record.

This example shows that the combination of Item VAT group FULL and VAT group VDOM generates a

VAT transaction for VAT code P20 (Domestic purchase 20%)

This example shows that the combination of Item VAT group RED and VAT group CDOM generates a VAT

transaction for VAT code S5 (Domestic sale 5 %)

11

9. In the following scenarios, you will see how the specific VAT group/Item VAT group

combinations work. The screenshots show vendor and customer invoice journals and the

subsequent representation of each scenario in the VAT Payment Report. Run the VAT payment

in General ledger>> Periodic>> VAT payment. In these examples, the field Update in the VAT

Payment window is never marked.

A. Domestic Purchase 20 % >> VAT code P20, Country/region type = Domestic, VAT amount to be

reported in Box 4, purchase amount to be reported in Box 7

Transaction: Vendor invoice – net amount 10 000, Item VAT group Full and VAT group VDOM

Journal line

12

Run the VAT payment Report from 01/01/2011 - 31/01/2011

The information given by the VAT direction together with the Country/region type determines on which

line the amounts are printed in the report.

13

B. Domestic Purchase 5 % - VAT code P5 - Country/region type = Domestic, VAT amount to be

reported in Box 4, purchase amount to be reported in Box 7

Transaction: Vendor invoice about power, electricity – net amount 20000, Item VAT group RED and VAT

group VDOM

Journal line

14

Run the VAT payment report from date 01/02/2011 to 28/02/2011:

15

C. Domestic Purchase Zero - VAT code PZ - Country/region type = Domestic, purchase amount to

be reported in Box 7

Transaction: Vendor invoice – net amount 8000, Item VAT group ZERO and VAT group VDOM

Journal line

16

Run the VAT payment report from date 01/03/2011 to 31/03/2011:

17

D. Domestic Sale 20% - VAT code S20 - Country/region type = Domestic, VAT amount to be

reported in Box 1, sales amount to be reported in Box 6

Transaction: Customer invoice – net amount 100000, Item VAT group FULL and VAT group CDOM

Journal line

18

Run the VAT payment report from date 01/04/2011 to 30/04/2011

19

E. Domestic Sale 5 % - VAT code S5 - Country/region type = Domestic - VAT amount to be reported

in Box 1, sales amount to be reported in Box 6

Transaction: Customer invoice – net amount 50000, Item VAT group RED and VAT group CDOM

Journal line

20

Run the VAT payment report from date 01/05/2011 to 31/05/2011

21

F. Domestic Sale zero % , - VAT code SZ - Country/region type = Domestic - sales amount to be

reported in Box 6

Transaction: Customer invoice – net amount 12000, Item VAT group ZERO and VAT group CDOM

Journal line

22

Run the VAT payment report from date 01/06/2011 to 30/06/2011

23

G. EU Supply tax free, - VAT code SEU - Country/region type = EU, sales amount to be reported in

Box 6 and Box 8

Transaction: Customer invoice – net amount 10000, Item VAT group FULL and VAT group CEU

Journal line

24

Run the VAT payment report from date 01/07/2011 to 31/07/2011

25

H. EU acquisitions, - VAT code PEU - Country/region type = EU, purchase amount to be reported in

Box 7 and separately in Box 9. VAT amount to be reported in Box 2 and Box 4

Transaction: Vendor invoice – net amount 30000, Item VAT group FULL and VAT group VEU

Journal line

26

Run the VAT payment report from date 01/08/2011 to 31/08/2011

27

I. Export to Non-EU countries, - VAT code EXP - Country/region type = Third country/region, sales

amount to be reported in Box 6.

Transaction: Customer invoice – net amount 50000 USD – 35135 EUR, Item VAT group FULL and VAT

group CEXP

Journal line

28

Run the VAT payment report from date 01/09/2011 to 30/09/2011

29

J. VAT on imports of goods from non-EU countries, for example when you import goods from

USA

Part 1: Usually the US vendor issues an invoice without tax, purchase amount to be reported in Box 7

Part 2: Then a separate invoice from the transportation company charges the import tax which was paid

at the border, VAT amount to be reported in Box 4

a. Vendor invoice – Part 1

Transaction: Vendor invoice – net amount 7000 USD, Item VAT group FULL and VAT group VIMP

30

Run the VAT payment report from date 01/09/2011 to 30/09/2011

b. Invoice – about import VAT

For this particular scenario, you will need to use the specific ledger account code that is setup in the

ledger posting group used by the VAT code IMP

31

Transaction: Vendor invoice – net amount 2500 GBP, 3590.50 EUR no Item VAT group - no VAT group

and the offset account 1400 (from IMPV ledger posting group above)

BUT – on tab General you manually select VAT code IMP

!! Note that the invoice amount equals the VAT amount

32

Run the VAT payment report from date 01/11/2011 to 30/11/2011

33

FINAL HINT: In order to generate the Item VAT group and the VAT group in journals you can select the

according Item VAT group and VAT group values in the setup of the ledger accounts - these fields

normally reside on the Setup tab in the Chart of Accounts form. In the illustration below, the fields have

been added to the Overview tab for convenience.

34

Microsoft Dynamics is a line of integrated, adaptable business management solutions that enables you and your people to make business decisions with greater confidence. Microsoft Dynamics works like and with familiar Microsoft software, automating and streamlining financial, customer relationship and supply chain processes in a way that helps you drive business success. U.S. and Canada Toll Free 1-888-477-7989 Worldwide +1-701-281-6500 www.microsoft.com/dynamics The information contained in this document represents the current view of Microsoft Corporation on the issues discussed as of the date of publication. Because Microsoft must respond to changing market conditions, this document should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information presented after the date of publication. This document is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, AS TO THE INFORMATION IN THIS DOCUMENT. Complying with all applicable copyright laws is the responsibility of the user. Without limiting the rights under copyright, no part of this document may be reproduced, stored in or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), or for any purpose, without the express written permission of Microsoft Corporation. Microsoft may have patents, patent applications, trademarks, copyrights, or other intellectual property rights covering subject matter in this document. Except as expressly provided in any written license agreement from Microsoft, the furnishing of this document does not give you any license to these patents, trademarks, copyrights, or other intellectual property. © 2011 Microsoft Corporation. All rights reserved. Microsoft, the Microsoft Dynamics Logo, Microsoft Dynamics are either registered trademarks or trademarks of the Microsoft group of companies.

All other trademarks are property of their respective owners.