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Home » UK VAT – GYDE365 Setup (Base)

UK VAT – GYDE365 Setup (Base)

VAT Authorities

VAT Authority setup sits at the centre of VAT setup, accounting and reporting.

For a UK VAT setup this means the setup of a VAT Authority for HM Revenue & Customs (HMRC).  Also key to this setup is the selection and assignment of the English report layout as highlighted in the screenshot below.

Dynamics 365 Finance – VAT Authorities

Dynamics 365 provides the option to setup each VAT Authority as a Supplier on the Purchase Ledger and for any VAT liability generated by the periodic VAT return process to be posted to the purchase ledger for inclusion in a subsequent payment run.

In the absence of a supplier account assignment for the VAT authority, Dynamics 365 will post any vat liability generated by the vat return process to a specified VAT settlement GL control account.

The latter is typical and proposed for a UK VAT setup.

Outside of Scope

There are some transactional types that would ordinarily result in the recording and posting of VAT transactions, but in specific scenarios a VAT transaction should not be created.

For example, where two companies belong to the same Group VAT Registration, if sales invoices are raised by one company on the other then there should be no VAT on that invoice.

To handle transactions of this nature and to put underlying parameter setup in place that aids processing of regular VAT scenarios, it is suggested that a separate VAT authority (OOS) be created to act as a conduit for all out-of-scope transactions.

GYDE365 Setup

The table below details the GYDE365 UK VAT, VAT Authority setup.

VAT Settlement Periods

VAT authority setup is extended by the setup of VAT settlement periods which specify and define the periodic frequency and dates that VAT returns are to be generated and submitted upon.

For UK VAT, VAT returns are most typically generated and submitted on a monthly basis but can also be generated and submitted on a quarterly (three monthly) basis.

The screenshot above shows the suggested vat settlement period setup for monthly UK vat returns.

If your business makes quarterly vat returns, the ‘period interval unit’ value remains set as ‘months’ and the ‘period interval duration’ value is changed to ‘3’.

The naming convention used to specify the ‘Settlement Period’ code is a more personal choice, but ‘GB_MONTHLY’ or ‘GB_QUARTERLY’ are suggested.

VAT Codes

VAT Codes sit at the heart of Dynamics 365 VAT accounting functionality and are the codes applied to every VAT accounting transaction and contain the primary properties required to aggregate VAT transactions appropriate to the VAT authority when creating a VAT return.

The VAT code setup form contains an extensive array of settings in order to fully support that tax accounting requirements for all of the territories and countries that Dynamics 365 provides local fiscal and statutory support for as standard.

Key settings for a UK VAT setup are as follows …

Settlement Period             associates the VAT code with both the VAT settlement period and as a result the Tax Authority it belongs to.

Ledger Posting Group      associates the general ledger vat control accounts to the vat code.

VAT currency                     defines the currency required for vat accounting.  Important when the local accounting currency and vat accounting currency differ.

Allow -ve VAT %                 enables facility to create negative vat rates for vat code, typically required for setup of reverse charge vat.

Country/Region Type       key (along with vat direction) in determining which boxes goods and vat values are reported in.

VAT 100 Postings

The table below is designed to show how VAT Codes (shown in blue), together with four VAT transaction specific properties i.e., country/region type, vat direction, exempt and reverse charge, determine which boxes the vat transactions goods and tax amounts are reported in on a UK VAT 100 return.

The columns in the left-hand block headed source transaction are intended to indicate the nature of the source transaction and its vat attributes that would be aligned with and determine the selection of the VAT code shown in blue.

GYDE365 Setup

Extensive Dynamics 365 implementation experience has led to the definition of the GYDE365 VAT Code setup, detailed in the table below.

VAT Code naming convention has been carefully considered to represent the country vat code setup is for (in the event of setup for multiple tax authorities in a single legal entity), nature of source transaction (sale/purchase), region of sale or purchase (domestic, EU or Rest of World) and the nature of vat classification (standard rated, reduced rated, zero rated, exempt).

VAT Code Values

VAT Code Values are an extension to the setup of each VAT Code and define the VAT Rate to be applied in relation to the assignment of the VAT code on say a sales invoice line or purchase invoice line.

The screenshot below shows the suggested vat code value setup for the following vat code …

GB_SUK_STD          GB Sales Domestic, Standard Rated

VAT Code Values

It’s important to note that the suggested VAT Code naming convention deliberately doesn’t include the VAT rate, but instead includes the VAT classification i.e., standard rated, reduced rated etc.  This avoids the situation where new VAT codes need to be created and their introduction carefully managed in the event of a change in the VAT rate.

The suggested vat code value entries in the screenshot below show historic changes to the UK standard vat rate changes, to illustrate how the introduction of a new vat rate would simply require the addition of a new vat code value entry.

GYDE365 Setup

Provided below is the suggested VAT Code Value setup for each of the GYDE365 VAT Codes

VAT Groups

VAT Groups are assigned to customer and supplier accounts and are setup to identify the vatable nature of the customer / supplier account.

VAT Groups form one side of the vat matrix detailed in the extended help for VAT Codes question FSCM_TX_VATUK_008 and specifically the sub-section headed VAT 100 Postings.

As can be seen in the sample VAT Group setup screenshot, the VAT Group setup section contains the list of VAT Codes assigned and applicable to the VAT Group.

VAT Groups

VAT Group, VAT Code assignment include three key settings for a UK VAT setup …

Exempt                      ensures a VAT exempt rate i.e., 0% is applied, regardless of VAT code value setup.

Reverse Charge       identifies that the VAT Code represents either a Domestic or Foreign Trade, Reverse Charge entry.

Use Tax                       not relevant or appropriate to a UK VAT configuration, should be set to ‘No’.

GYDE365 Setup

Provided below is the suggested VAT Group setup, including VAT code assignment together with settings, utilising the suggested VAT codes setup detailed for question FSCM_TX_VATUK_008.

Item VAT Groups

Item VAT Groups are assigned to released products, procurement categories and sales categories and setup to identify the vatable classification of an item or service.

Item VAT Groups form the second side of the vat matrix (alongside vat groups) as detailed in the extended help for VAT Codes question FSCM_TX_VATUK_008 and specifically the sub-section headed VAT 100 Postings.

Item VAT Group setup is modelled to reflect the vatable classifications for products and services i.e., standard rated, reduced rated, zero rated, vat exempt.

Item VAT Group definition is also modelled on ‘Reporting Type’ that primarily distinguishes the Item VAT Group assignment to either an Item or Service.  This setting is key for Foreign Trade and specifically the EC Sales List report which needs to separate taxable revenue between Items and Services.

As can be seen in the sample Item VAT Group setup screenshot, the Item VAT Group setup section contains the list of VAT Codes assigned and applicable to the Item VAT Group.

GYDE365 Setup

Provided below is the suggested Item VAT Group setup, including VAT code assignment utilising the suggested VAT codes setup detailed for question FSCM_TX_VATUK_008.