Set up calculations and posting methods for value-added tax

Consumers and businesses pay value-added tax (VAT) when they purchase goods or services. The amount of VAT to pay can vary, depending on several factors. In Business Central, you set up VAT to specify the rates used to calculate tax amounts based on the following parameters:

• Who you sell to
• Who you buy from
• What you sell
• What you buy

You can set up VAT calculations manually, but that can be tricky and time-consuming. It's easy to use different VAT rates by mistake and create inaccurate VAT-related reports. To make VAT set up easier, we recommend you use the VAT Setup assisted setup guide.

However, if you want to set up the VAT calculations yourself, or just want to learn about each step, this article contains descriptions of each step.

Tip

Tip:
Business Central is available in countries/regions that don't use VAT. For information about how to set up and report tax in your particular country/region, go to the articles in the Local Functionality section.

Set up VAT using the assisted setup guide (recommended)

Note

Note:
You can use the VAT Setup guide only if you have created a My Company and haven't posted transactions that include VAT. To learn more about a My Company, go to Create new companies in Business Central.

To start the assisted setup guide, follow these steps:

1. Choose the icon and enter Assisted Setup.
2. Choose Set up Value-Added Tax (VAT) and complete the steps.
3. After you complete the assisted setup, go to the VAT Posting Setup page to check whether you need to fill in more fields according to the local requirements in your version of Business Central. Learn more at Local functionality in Business Central.

Check the VAT posting setup

To support your fast start, Business Central notifies you of missing general ledger (G/L) accounts in posting groups or posting setups, such as on the VAT Posting Setup page. You can turn this type of notification on or off using the G/L Account is missing in posting group or setup notification in the My Notifications page. Just go to the My settings page, and then choose the Change when I receive notifications link.

If you choose the notification, Business Central creates posting setups based on the posting groups in the document or journal you're currently working on.

At this point, you can just fill in the missing G/L accounts. But, when you further refine your setup later, you might realize your initial setup is wrong. Business Central doesn't allow you to delete a VAT posting setup and general posting setup after they're used to create entries. To prevent people from mistakenly using a setup that's no longer relevant for new postings, you can use the Blocked field on the General Posting Setup page.

Set up a default VAT date for documents and journals

VAT reporting in Business Central is based on the VAT Date to include VAT entries on VAT reports in a VAT period. The VAT date can be changed on all documents and journals, but you must specify a default value for VAT date.

Note

Note:
After posting the document or journal, the VAT Date will appear on VAT Entries and G/L Entries as well as on the posted document if exists.

To set up a default value for a VAT date, follow these steps:

1. Choose the icon and enter General Ledger Setup, and then choose the related link.
2. On the General FastTab, in the Default VAT Date field, choose either Posting Date or Document Date.
3. Close the page.

Note

Note:
By default, the Default VAT Date is the Posting Date.

Enable or disable the VAT Date feature

Some countries/regions require that businesses use a specific VAT date, but other countries/regions don't. Some countries/regions also require businesses to change the VAT date in specific situations after they post documents, but other countries/regions don't allow changes to VAT dates. To allow for different contexts, you can choose whether you want to use this functionality and, if so, to what degree.

To set up the level of VAT date usage, follow these steps:

1. Choose the icon and enter General Ledger Setup, and then choose the related link.

2. On the General FastTab, in the VAT Date Usage field, specify the degree to which you want to use the VAT date feature. You can choose one of the following options:

   Type	Description
   Use full VAT Date functionality	Everything related to VAT Date works by default, giving you the maximum VAT Date functionality. You can set up the date, change it in documents, report based on it, and modify the date after posting as long as the period isn't closed or protected with allowed dates for posting.
   Use but do not allow modifications	Everything related to VAT Date works by default with one exception. You can't modify the VAT Date in VAT Entries.
   Not using VAT Date functionality	Business Central hides and makes the VAT Date fields unavailable on documents, journals, and entries. The Default VAT Date is configured as the Posting Date.

3. Close the page.

Important

Important:
Even if you choose the Not using VAT Date functionality option, Business Central will use the VAT Date in the background. Because the Default VAT Date is configured as the Posting Date, and you can't change it in this case, you'll get the same experience as without this feature. VAT Date fields will be removed from all pages, but this field will still exist in tables and reports will work based on it.

Limiting periods for posting and changing the VAT date

You can prevent people from posting or changing VAT entries in specific date ranges. You set the restriction using two settings:

• Based on closed VAT Return Period
• Based on the Allow Posting From and Allow Posting To fields.

To limit posting based on VAT return period

1. Choose the icon, enter General Ledger Setup, and then choose the related link.
2. On the General FastTab, in the Control VAT Period field, specify the degree of VAT Return Period control. The following table describes the options.

Type	Description
Block posting within closed and warn for released period	Prevent people from posting a document or journal, or changing VAT entries that have a VAT date within a closed VAT Return Period. Business Central also shows a warning if your VAT Return Period is open, but the status of VAT Return is Released or Submitted.
Block posting within closed period	Prevent people from posting a document or journal, or changing vat entries that have a VAT date within the closed VAT Return Period.
Warn when posting in closed period	Show a warning, but don't block posting, if you want to post a document or journal that has a VAT date within a closed VAT Return Period.
Disabled	Take no action based on a closed VAT Return Period.

Limit posting based on Allow from/to period

Note

Note:
As of Business Central version 23.1, this control is changed. In earlier versions, there was only one control on the General Ledger Setup page for both Posting Date and VAT Date. Now, these controls are split, so control in the General Ledger Setup page is for the Posting Date only and control in the VAT Setup page is for the VAT Date only. There are also new date controls in the User Setup page.

Version 23.1 or newer

Important

Important:
When you upgrade to a newversion, be aware that values are upgraded in the new Allow VAT Date From/To in the VAT Setup page based on the values in Allow Posting From/To in the General Ledger Setup. If you want to use different date controls, open the VAT Setup page and make changes.

You can set up limitations on the company or at specific user levels.

To limit all postings for the whole company:

1. Select the icon, enter VAT Setup, and then select the related link.
2. On the VAT Date FastTab, in the Allow VAT Date From field, specify the VAT date from which you allow posting. Posting a document or journal with a VAT date before this date isn't allowed.
3. On the VAT Date FastTab, in the Allow VAT Date To field, specify the VAT date until which you allow posting. Posting a document or journal with a VAT date after this date isn't allowed.

To limit postings for the specific user:

1. Select the icon, enter User Setup, and then select the related link.
2. In the User ID field, specify the user allowed to post in a specific period.
3. In the Allow VAT Date From field, specify the VAT date from which you allow posting. Posting a document or journal with a VAT date before this date isn't allowed.
4. In the Allow VAT Date To field, specify the VAT date until which you allow posting. Posting a document or journal with a VAT date after this date isn't allowed.

Versions before 23.1

You can set up limitation on the company or specific user levels.

To limit all postings for the whole company:

1. Choose the icon, enter General Ledger Setup, and then choose the related link.
2. On the General FastTab, in the Allow Posting From field, specify the VAT date from which you allow posting. Posting a document or journal with a VAT date before this date isn't allowed.
3. On the General FastTab, in the Allow Posting To field, specify the VAT date until which you allow posting. Posting a document or journal with a VAT date after this date isn't allowed.

To limit postings for the specific user:

1. Choose the icon, enter User Setup, and then choose the related link.
2. In the User ID field, specify the user allowed to post in specific period.
3. In the Allow Posting From field, specify the VAT date from which you allow posting. Posting a document or journal with a VAT date before this date isn't allowed.
4. In the Allow Posting To field, specify the VAT date until which you allow posting. Posting a document or journal with a VAT date after this date isn't allowed.

Set up VAT registration numbers for your country/region

To help ensure people enter valid VAT registration numbers, you can define formats for the VAT registration numbers that are used in the countries/regions in which you do business. Business Central displays an error message if someone makes a mistake or uses a format that is incorrect for the country/region.

To set up VAT registration numbers, follow these steps:

1. Choose the icon, enter Countries/Regions.
2. Choose the country or region, and then choose the VAT Reg. No. Formats action.
3. In the Formats field, define the format by entering one or more of the following characters:

• # Requires a single-digit number.

• @ Requires a letter. This format isn't case-sensitive.

• ? Allows any character.

  Tip

  You can use other characters as long as they are always present in the country or region format. So, if you need to include a period or a hyphen between sets of numbers, you can define the format as ##.####.### or @@-###-###.

Set up VAT business posting groups

VAT business posting groups should represent the markets in which you do business with customers and vendors, and define how to calculate and post VAT in each market. Examples of VAT business posting groups are Domestic and European Union (EU).

Use codes that are easy to remember and describe the business posting group, such as EU, Non-EU, or Domestic. Each code must be unique, meaning you can set up as many codes as you need, but you can't have the same code more than once in a table.

To set up a VAT business posting group, follow these steps:

1. Choose the icon, enter VAT Business Posting Groups, and then choose the related link.
2. Fill in the fields as necessary.

You can set up default VAT business posting groups by linking them to general business posting groups. Business Central automatically assigns the VAT business posting group when you assign the business posting group to a customer, vendor, or general ledger account.

Set up VAT product posting groups

VAT product posting groups represent the items and resources you buy or sell, and determine how to calculate and post VAT according to the type of item or resource.

It's a good idea to use codes that are easy to remember and describe the rate, such as NO-VAT or Zero, VAT10 or Reduced for 10 percent VAT, and VAT25 or Standard for 25 percent.

To set up a VAT business posting group, follow these steps:

1. Choose the icon, enter VAT Product Posting Groups, and then choose the related link.
2. Fill in the fields as necessary.

Combine VAT posting groups in VAT posting setups

Business Central calculates VAT amounts on sales and purchases based on VAT posting setups, which are combinations of VAT business and product posting groups. For each combination, you can specify the VAT percent, VAT calculation type, and general ledger accounts for posting VAT for sales, purchases, and reverse charges. You can also specify whether to recalculate VAT when a payment discount is applied or received.

Set up as many combinations as you need. To group VAT posting setup combinations with similar attributes, define a VAT Identifier for each group, and assign the identifier to the group members.

Note

Note:
A VAT Identifier is a code you can use to group similar attributes. We recommend you use different VAT identifiers for different VAT percentages.

To combine VAT posting setups, follow these steps:

1. Choose the icon, enter VAT Posting Setup, and then choose the related link.
2. Fill in the fields as necessary. Hover over a field to read a short description.

Assign VAT posting groups by default to multiple entities

If you want to apply the same VAT posting groups to multiple entities, you can set up Business Central to do so by default.

• You can assign VAT business posting groups to general business posting groups, or customer or vendor templates.
• You can assign VAT product posting groups on general product posting groups.

The VAT business or product posting group is assigned when you choose a business or product posting group for a customer, vendor, item, or resource.

Assign VAT posting groups to accounts, customers, vendors, items, and resources

The following sections describe how to assign VAT posting groups to individual entities.

To assign VAT posting groups to individual general ledger accounts

1. Choose the icon, enter Chart of Accounts, and then choose the related link.
2. Open the G/L Account Card for the account.
3. On the Posting FastTab, in the Gen. Posting Type field, choose either Sale or Purchase.
4. Choose the VAT posting groups to use for the sales or purchase account.

To assign VAT business posting groups to customers and vendors

1. Choose the icon, enter Customer or Vendor, and then choose the related link.
2. On the Customer or Vendor card, expand the Invoicing FastTab.
3. Choose the VAT Bus. Posting Group.

To assign VAT product posting groups to individual items and resources

1. Choose the icon, enter Item or Resource, and then choose the related link.

2. Do one of the following steps:

   • On the Item card, expand the Price & Posting FastTab, and then choose Show more to display the VAT Prod. Posting Group field.
   • On the Resource card, expand the Invoicing FastTab.

3. Choose the VAT product posting group.

Set up clauses to explain VAT exemption or nonstandard VAT rates

You set up a VAT clause to describe information about the type of VAT that is being applied. Government regulations might require this information. After you set up a VAT clause and associate it with a VAT posting setup, the VAT clause displays on printed sales documents that use the VAT posting group setup.

If needed, you can also specify how to translate VAT clauses to other languages. When you create and print a sales document that contains a VAT identifier, the document includes the translated VAT clause. The language code specified on the customer card determines the language.

When you use nonstandard VAT rates in different types of documents, such as invoices or credit memos, you might have to include an exemption text (VAT clause). The exemption text states why you calculated a reduced VAT or zero VAT rate. You can define different VAT clauses to include on business documents for each type of document on the VAT Clauses by Document Type page.

You can modify or delete a VAT clause, and your modifications are reflected in a generated report. However, Business Central doesn't keep a history of the change. On the report, the VAT clause descriptions are printed and displayed for all lines in the report alongside the VAT amount and the VAT base amount. If a VAT clause isn't defined for any lines on the sales document, the whole section is omitted when you print the report.

To set up VAT clauses

1. Choose the icon, enter VAT Clauses, and then choose the related link.
2. On the VAT Clauses page, create a new line.
3. In the Code field, enter an identifier for the clause. You use this code to assign the clause to VAT posting groups.
4. In the Description field, enter the VAT exemption text that you want to display on documents that can include VAT. In the Description 2 field, enter more text, if needed. The text is displayed on new document lines.
5. Choose the Description by document type action.
6. On the VAT Clauses by Document Type page, fill in the fields to set up which VAT exemption text to display for which document type.
7. Optional: To assign the VAT clause to a VAT posting setup right away, choose Setup, and then choose the clause. If you want to wait, you can assign the clause later on the VAT Posting Setup page.
8. Optional: To specify how to translate the VAT clause, choose the Translations action.

To assign a VAT clause to a VAT posting setup

1. Choose the icon, enter VAT Posting Setup, and then choose the related link.
2. In the VAT Clause Code column, choose the clause to use for each VAT posting setup it applies to.

To specify translations for VAT clauses

1. Choose the icon, enter VAT Clauses, and then choose the related link.
2. Choose the Translations action.
3. In the Language Code field, choose the language you're translating to.
4. In the Description and Description 2 fields, enter the translations of the descriptions. This text displays in the translated VAT report documents.

To specify extended text for VAT clauses

Note

Note:
If your country or region requires longer text for the VAT clauses than the default version supports, you can specify the longer text for the VAT clauses as extended text so that it prints on the sales and purchase reports.

1. Choose the icon, enter VAT Clauses, and then choose the related link.
2. Choose the Extended Texts action.
3. Choose the New action.
4. Fill in the Language Code and Description fields.
5. Optionally, select the All Language Codes field, or specify the relevant language in the Language Code field if you use language codes.
6. Fill in the Starting Date and Ending Date fields if you want to limit the dates on which the extended text is used.
7. In the Text lines, write the extended text for your VAT clauses.
8. Select the relevant fields for the document types where you want the extended text printed.
9. Close the page.

Create a VAT posting setup to handle Import VAT

Use the Import VAT feature when you need to post a document where the entire amount is VAT. You use this feature if you receive an invoice from the tax authorities for VAT for imported goods.

To set up codes for import VAT, follow these steps:

1. Choose the icon, enter VAT Product Posting Groups, and then choose the related link.
2. On the VAT Product Posting Groups page, set up a new VAT product posting group for import VAT.
3. Choose the icon, enter VAT Posting Setup, and then choose the related link.
4. On the VAT Posting Setup page, create a new line, or use an existing VAT business posting groups in combination with the new VAT product posting group for import VAT.
5. In the VAT Calculation Type field, choose Full VAT.
6. In the Purchase VAT Account field, enter the general ledger account to use for posting import VAT. All other accounts are optional.

Use reverse charge VAT for trade between EU countries/regions

Some companies must use reverse charge VAT when trading with other companies. For example, this rule applies to purchases from EU countries/regions and sales to EU countries/regions.

Note

Note:
This rule applies when trading with companies that are registered as VAT liable in another EU country/region. If you do business directly with consumers in other EU countries/regions, then you should contact your tax authority for applicable VAT rules.

Tip

Tip:
You can verify that a company is registered as VAT liable in another EU country/region by using the EU VAT Registration Number Validation service. The service is available for free in Business Central. For more information, see Verify VAT registration numbers.

Sales to EU countries or regions

VAT isn't calculated on sales to VAT-liable companies in other EU countries/regions. You must report the value of these sales to EU countries/regions separately on your VAT statement.

To correctly calculate VAT on sales to EU countries/regions, you should:

• Set up a line for sales with the same information for purchases. If you set up lines on the VAT Posting Setup page for purchases from EU countries/regions, you can also use these lines for sales.
• Assign the VAT business posting groups in the VAT Bus. Posting Group field on the Invoicing FastTab of the customer card of each EU customer. You should also enter the customer's VAT registration number in the VAT Registration No. field on the Foreign Trade FastTab.

When you post a sale to a customer in another EU country/region, Business Central calculates the VAT amount and creates a VAT entry based on information about the reverse charge VAT and the VAT base. This amount is used to calculate the VAT amount. No entries are posted to the VAT accounts in the general ledger.

If you want to use combination of VAT business posting group and VAT product posting group for reporting as services in the periodic VAT reports, mark the EU Service field.

Note

Note:
The EU Service field is only applicable for VAT reports. The field isn't related to the Service Declaration or Intrastat for Services features.

VAT rounding for documents

Amounts in documents that aren't posted are rounded and displayed to correspond with the final rounding of amounts that are posted. Business Central calculates VAT for a complete document. The VAT calculation is based on the sum of all lines with the same VAT identifier in the document.

Set up VAT reporting

You must set up information about how the tax authorities in your country or region require you to submit VAT reports. The following steps illustrate the most commonly used information. However, your country or region might require other steps. For more information, see the relevant article in the Local functionality section in the panel to the left.

1. Choose the icon, enter VAT Report Setup, and then choose the related link.

2. To let users change and resubmit this report, choose the Allow Modification field.

3. If the tax authorities require that you submit VAT reports that also include the net amount that was used to calculate VAT, choose the Report VAT Base field.

4. Choose the number series to use for each report. Hover over a field to read a short description.

5. In supported countries/regions, to set up VAT return periods, fill in the Report Version and Period Reminder Calculation fields on the Return Period FastTab.

   In countries/regions where VAT return periods are required by the tax authorities, such as the UK, you must fill in additional fields as well. Hover over a field to read a short description. However, in the British version, this FastTab has the name Making Tax Digital.

6. If your company is part of a VAT group, then specify your role. For more information, see The VAT Group Management Extension

See also

Set Up VAT Statement Templates and VAT Statement Names
Set Up Unrealized Value Added Tax
Report VAT to a Tax Authority
Work with VAT on Sales and Purchases
Work with the VAT Rate Change Tool
Verify VAT registration numbers
Local functionality in Business Central
Reporting Goods/Services Tax and Harmonized Sales Tax in Canada

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