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Microsoft Dynamics 365 for Finance and Operations

Temporary cuts in VAT – How to manage the change in Microsoft Dynamics 365 for Finance and Operations

Hitachi Solutions > Blog > 2020 > 07 > Temporary cuts in VAT – How to manage the change in Microsoft Dynamics 365 for Finance and Operations

On Wednesday 8th July 2020, Chancellor Rishi Sunak announced a temporary cut on VAT rates effective from 15th July. So far, we know that the effective VAT rate of 20% will be reduced to just 5% on the following items that are bought and sold:

  • Food
  • Accommodation
  • Attractions

The finer details are yet to be released but we will update this article when we have full disclosure. Regardless, it will be beneficial for all organisations to be ready to account for the VAT correctly in advance of Wednesday the 15th.

For organisations using Microsoft Dynamics 365 for Finance and Operations (FinOps), the impact will be that Tax configurations will need to be modified to reflect these new lower rates. By following the steps below, we will show you how to amend the tax rates attributed to the specified Items.

There are three main areas that need to be modified, or verified, to see if you already have these configured.

Please note that it is highly recommended that you test this configuration in a test environment prior to implementing into a production environment.

Step 1: Sales tax codes

Tax > Indirect taxes > Sales tax > Sales tax codes > New

Create a new 5% code, being sure to allocate the correct settlement period, ledger posting group and currency.

 

Step 2: Sales tax groups

Tax > Indirect taxes > Sales tax > Sales tax groups > Edit

Find your Domestic or UK based groups. In this example, I have a group for inputs and a group for outputs, but your configuration may just include a single Domestic group. Then within the Setup area, add in your new 5% tax code that you created in Step 1 above:


Step 3: Item sales tax group

Tax > Indirect taxes > Sales tax > Item sales tax groups > Edit/New

If you don’t already have a Reduced Rate Item sales tax group, then you need to create a new one. This group will be attached to the items that the chancellor has identified as now being 5% instead of the original 20%.

Within the Setup area, include the 5% tax rates that you created in Step 1 above.

Please note: for completeness, I have included a code for both input and output tax.

 


Step 4: Identify the Items that need to be reduced

At this point, we can now attach the Item sales tax code to the relevant Items, so that the reduced amount of 5% is claimed in the system, rather than the 20%. Remember that items are the FinOps term for the individual items and products that we can buy or sell.

Navigate to Product and information management > Products > Released products.

In both the Purchase and Sales fast-tabs, amend the Item sales tax group to the Reduced 5% one that we made earlier:


Step 5: Items that can be claimed on expenses

Expense management > Setup > General > Expense categories

We will now allocate the new Reduced Item sales tax group to each of the expense types of Food, Accommodation and Attractions

 

Once all of the five steps above have been completed for each item relating to Accommodation, Food and Attractions, you should be able to start testing a sample of test transactions.

As always, should you require any assistance our team of expert consultants are on hand to offer support and advice.

Contact our team today

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Matt Treadway

Matt Treadway recently joined Hitachi Solutions after working as a senior Finance consultant on a number of Professional Services implementations over the past seven years. Matt is a FCCA qualified accountant who first worked with Microsoft Dynamics as an end-user within a major PLC, who now focusses on making implementations of D365 FinOps as successful as possible.

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Author Spotlight

Matt Treadway

Matt Treadway recently joined Hitachi Solutions after working as a senior Finance consultant on a number of Professional Services implementations over the past seven years. Matt is a FCCA qualified accountant who first worked with Microsoft Dynamics as an end-user within a major PLC, who now focusses on making implementations of D365 FinOps as successful as possible.

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