Overview
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 aggrege VAT transactions appropriate to the tax authority when creating a VAT return.
Key settings for a UK VAT setup are detailed below …
VAT Code
VAT Codes are limited to 10 character, with the naming convention used being very important.
This should ideally include representation of vat authority (country), vat direction, location of sale/purchase and vat classification (standard, reduced, zero, exempt etc).
Important: it is strongly recommended that the VAT Rate e.g. 20% (as opposed to the vat classification), does not form part of the vat code naming convention as vat codes can become unnecessarily obsolete and new vat codes will need to be created (unnecessarily) in the event of a VAT rate change
Settlement Period
associate the appropriate, previously specified VAT settlement period (which in turn is associated to a specified VAT Authority) to specify which countries vat accounting the vat code belongs to.
Ledger Posting Group
associate the appropriate, previously specified VAT Ledger Posting Group required to source the GL VAT control accounts to be posted to for all VAT transactions for the VAT Code.
VAT currency
This defines the primary currency that vat accounting is recorded in for the VAT code.
This is particularly important when the legal entity setup requires that the local accounting currency and vat accounting currency differ. For example, a UK registered company that is registered for VAT in both the UK and the Republic of Ireland would have a local accounting currency set to GBP, and VAT Codes for UK VAT accounting with currency set to GBP and VAT Codes for Irish VAT accounting set to EUR i.e. the local currency in Ireland.
This capability is referred to as Dual Currency for Tax, with further detail being provided on the following MS Docs page.
https://docs.microsoft.com/en-us/dynamics365/finance/general-ledger/dual-currency-for-tax
Allow -ve VAT %
This enables the facility to specify negative vat code values (vat rates), which are typically required for the setup of vat codes that account for reverse charge vat.
Country/Region Type
Country/Region Type is key (along with vat direction) in determining which boxes goods and vat values are reported in on the UK VAT 100 report, as detailed in the VAT 100 Postings section.
EU Sales List
this setting forms part of Foreign Trade setup, specifically for EC Sales List reporting. Only VAT Codes that specifically relate to sales to EU customers and only where those sales are to be included on a EC Sales List submission, should have this option set to ‘No’. For all other scenarios, this option should be set to ‘Yes’.
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.
