VAT Tax calculation and Transactions in Dynamic Navision

A.    VAT Tax calculation and Transactions in MS Dynamic NAV

This is a detail article about VAT Setup functionality available in Dynamic NAV. Here I tried to give understanding to reader about how to do setup of VAT in Dynamic Navision with different parts of VAT i.e. Posting & Business groups, Vat setup in Masters (Customer/Vendor/Items) etc. 

1.      VAT BUSINESS Posting Group:- VAT law has segregated the “Purchase and Sales” transaction according to the geographical positions i.e. VAT at the time of Import & Export, Intra GCC VAT, Intra Emirates VAT and VAT on branch Transfers and so on. Accordingly the business posting groups has to be set in the system i.e. Domestic/Local, Intercompany, Import and Export etc.

2. VAT Product Posting Group :- As per the geographical positions and ITEMS, the vat rates has been defined i.e. 5% VAT, 0% VAT, Exempted VAT and Reverse VAT. Accordingly the VAT product posting group will be set i.e. VAT@5%, VAT@0%, No VAT or Reverse VAT (In case of Import).

3.  Masters

(I)                Vendor/Customer Master/ITEM Card:- Vat business group should link in vendor and customer card. Linking  of business group depends on the nature of Vendor and Customer, means whether vendor or customer is local or foreign. 

a. Vendor Master

b. Customer Master

  C. ITEM Card:-   For calculation of VAT amount on the purchase/sales order/invoice, the VAT Prod. posting group should link with the Item card, which ever Vat Prod. Posting group will be linked with the Item card, accordingly the Vat will be calculated on the purchase/sales order/invoice i.e. VAT@ 5%, 0%, No VAT, exempt and reverse VAT.

4.VAT Posting Setup:-   The VAT posting setup consists of combinations of VAT business posting groups and VAT product posting groups. You can set up as many combinations as you need and link various G/L accounts to each combination as showing in below image. Now, whenever you will try to post the entry the program will check the VAT Posting Setup window to see which accounts to use for this particular combination of VAT business posting group and VAT product posting group to post the entry.

(i) To get the detail understanding, please click one of the above mentioned combination and accordingly following window will open:-

a.       VAT Business Posting Group

b.      VAT Prod. Posting Group

c.       VAT Calculation TYPE :-

(i)                 Normal VAT :-In this case the Vat amount will be calculate as per VAT % field i.e. 5% or 10% on invoice value.

(ii)               Reverse Charge VAT :- There is rule in the VAT law that the VAT will also be payable on the Import of goods, means generally the VAT is a responsibility at seller to collect the VAT from the purchaser, but here in case of import the VAT is the responsibility on the importer, he has to pay the VAT at the time of clearance of goods from custom department, so Reverse charge is applicable on this type of cases.

   

(iii)             Full VAT– Use this option when the amount you want to post that has this particular combination of VAT business posting group and VAT product posting group consists entirely of VAT. This option can be useful if, for example, you make a corrective entry in order to correct a VAT calculation error.

(iv)             Sales TAX - This option is only used if the program must handle US sales tax instead of VAT.

d.      VAT% :- The rate of VAT % i.e. 5%, 10% and so on will be put here for calculation purpose.

e.       Unrealized VAT Type :-  Specifies how to handle unrealized VAT, which is VAT that is calculated but not due until the invoice is paid. The unrealized VAT type determines how a payment is allocated to the invoice amount (excluding VAT) and the VAT amount itself, and how VAT amounts are transferred from the unrealized VAT account to the (realized) VAT account. Note that the field is automatically set to Blank. The option can only be changed if there is a check mark in the Unrealized VAT field in the General Ledger Setup window. The available options for handling tax when posting payments are the following:

(i)                 Blank:- Select this option if you do not want the program to use the unrealized VAT feature for the current combination.

(ii)               Percentage:- When you select this option, each payments cover both VAT and invoice amount in proportion to the payment's percentage of the remaining invoice amount. The paid VAT amount is transferred from the unrealized VAT account to the VAT account.

(iii)             First:- When you select this option, payments cover VAT first and then invoice amounts. In this case, the amount transferred from the unrealized VAT account to the VAT account will equal the amount of the payment until the total VAT has been paid.

(iv)             Last:- When you select this option, payments cover the invoice amount first and then VAT. In this case, no amount will be transferred from the unrealized VAT account to the VAT account until the total amount of the invoice, exclusive VAT, has been paid.

(v)               First (Fully Paid):- When you select this option, payments will cover VAT first (as in the First option), but no amount will be transferred to the VAT account until the full amount of VAT has been paid.

(vi)             Last (Fully Paid):- When you select this option, payments will cover the invoice amount first (as in the Last option), but no amount will be transferred to the VAT account until the full amount of VAT has been paid.

f.       VAT Identifier: - This is important to fill, otherwise in the preview of sales bill the vat will not show separately as per Vat product posting group wise i.e.  Vat on the items group of 5%, 0% and so on.

g.      VAT clauses:- are used to provide descriptive information about the VAT that is being reported on a sales document. The VAT clause information is displayed on a printed document alongside the VAT identifier or VAT rate. For example, you may have specified that the VAT identifier associated with a sales line is a certain type of VAT. You can then create a VAT clause that displays information about the VAT. You set up a VAT clause in the VAT Clauses window. You can also provide translated VAT clause descriptions in the report. The translated text will be based on the language code of the customer. You set up the translations in the VAT Clause Translations window.

h.      EU Services – Booleen

i.        Adjust for payment Discount – Booleen - Specifies whether to recalculate VAT amounts when you post payments that trigger payment discounts. For example, if a customer receives payment discounts for a timely payment, the program will recalculate the VAT amount using the same VAT % as when you originally posted the sales invoice for this customer. The renewed calculation will be based on the invoice amount less the payment discount. Your sales VAT account will then be reduced by the difference between the original and the new VAT amount.

j.        Certificate of supply Required:- (Not Usefull for UAE – Details given only for information purpose) When you sell goods to a customer in another EU country/region, the customer must confirm receipt before you can deduct VAT or calculate zero VAT according to the rules for intra-community trade. When you sell goods or sell services that include items to a customer in another EU country/region, you can post the order as shipped and invoiced. If a shipment requires a certificate of supply, you must print a certificate of supply that the customer must sign and return to you. According to the rules for intra-community trade, the invoice that you create at this point will not include VAT. Therefore, if the customer does not return the signed certificate of supply, you must issue a new invoice that includes VAT. Alternatively, you must manually correct the VAT. You must print a certificate of supply if the shipment uses a combination of VAT business posting group and VAT product posting group that have been marked for requiring a certificate of supply in the VAT Posting Setup window. You can add the relevant report to the report selection for sales, services, or return shipments so that the certificate of supply is printed automatically if it is required. If the customer does not sign and return the certificate of supply, you must set the Status field to Not Received. Then, you must send the customer a new invoice that includes VAT and refers to the original invoice. This provides a trail that can help you in the auditing process. To help you track if documents are posted that require a certificate of supply, you can enable the change log for the tables for shipments. You can add a cue to your role center to show you documents that have a certificate of supply status of Received or Not Received. This way, it is easier for you to remind customers to return the certificate of supply so that you do not have to cancel the existing invoice and issue a new invoice. A certificate of supply is also required when you return a shipment to a vendor in another EU country/region.

k.      Tax category: - Specifies the VAT category in connection with electronic document sending. For example, when you send sales documents through the PEPPOL service, the value in this field is used to populate the Tax Applied element in the Supplier group. The number is based on the UNCL5305 standard.

l.         Calc. and Post Vat Settlement :- Closes open VAT entries and transfers purchase and sales VAT amounts to the VAT settlement account. For every VAT posting group, the batch job finds all the VAT entries in the VAT Entry table that are included in the filters in the definition window. When the VAT entries are closed, the Closed field in the VAT Entry table is marked. The entry number of the settlement entry that has closed the entry is inserted automatically in the Closed by Entry No. field. This happens only when the amount must be transferred between general ledger accounts. When a VAT amount is transferred to the VAT settlement account, the account for purchase VAT is credited and the account for sales VAT is debited with the amount from the VAT statement period. The account numbers are found in the VAT Posting Setup table. The account for VAT settlement is credited with the net amount. If the purchase VAT amount is larger, it is debited. You can use the batch job either to start the posting process or to print a test report. The posted entries are assigned the dimensions from the general ledger accounts they are posted to.

(i)                 Starting Date :- Enter the first date in the period from which VAT entries are processed in the batch job.

(ii)               Ending Date:- Enter the last date in the period from which VAT entries are processed in the batch job.

(iii)             Posting Date:- Enter the date on which the transfer to the VAT account is posted. This field must be filled in.

(iv)              Document No:- Enter a document number. This field must be filled in.

(v)                Settlement Account:- Select the number of the VAT settlement account. Select the field to see the chart of account. This field must be filled in.

(vi)              Show VAT Entries:- Select if you want the report that is printed during the batch job to contain the individual VAT entries. If you do not choose to print the VAT entries, the settlement amount is shown only for each VAT posting group.

(vii)            Post:- Select if you want the program to post the transfer to the VAT settlement account automatically. If you do not choose to post the transfer, the batch job only prints a test report, and Test Report (not Posted) appears on the report.

(viii)          Show Amounts in Add. Reporting Currency:- Select if you want report amounts to be shown in the additional reporting currency.

m.     VAT Rate Change:- Microsoft Dynamics NAV helps streamline routine accounting practices with automated financial processes. In Microsoft Dynamics NAV, you can set up multiple VAT rates using the VAT posting groups and general posting groups so that you can easily change VAT rates in order to maintain accurate VAT reporting. But companies often have thousands of open documents or journal lines where it would be cumbersome to manually update the VAT posting groups and general posting groups. Also, you would need to update master data such as items with the new default VAT posting groups and general posting groups due to the new VAT rate.  Microsoft Dynamics NAV delivers a new tool that makes it possible for you to define what   master data needs to be updated, match old posting groups to new posting groups, and implement the changes on open documents and journal lines. This tool makes it possible for customers and partners to accommodate changes in VAT rates with a minimum amount of time and costs. The tool has previously been released as stand-alone, but it is now included in Microsoft Dynamics NAV with some improvements over the earlier version.

The VAT Rate Change Tool in Microsoft Dynamics NAV gives you a fast and efficient way to implement new and changing VAT rules yourself – without any updates or partner implementation. As a result, changes in VAT can be rolled out centrally and can be carried out quickly, so that your company can stay compliant with local VAT regulations. When the conversion is complete, VAT and general posting groups are converted, and changes are implemented in general ledger accounts, customers, vendors, open documents, journal lines, and so on.

The VAT Rate Change Tool in Microsoft Dynamics NAV includes the following functionality:

• A conversion-complete field that is set when the tool has completed the conversion from the old rate to the new rate.
• A field to specify the date of the conversion for the converted VAT product posting groups and general product posting groups.
• A window to show VAT rate change log entries so that the user can see what has changed and when.
• General alignment with the Microsoft Dynamics NAV standard application.

Vat Prod. Posting Group Conversion

Gen. Prod. Posting Group Conversion

VAT Rate Change Setup

B.     UAE VAT LAW in some particular cases

M.   VAT Setup Should is as per Exempt and Non-Exempt Supplies:- Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid. In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies. Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.

N.    Will there be any VAT that businesses are not allowed to claim?:-  VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.

O.    Under which conditions will businesses be allowed to claim VAT incurred on expenses?:- VAT on expenses that were incurred by a business can be deducted in the following circumstances:

• The business must be a taxable person (the end consumer cannot claim any input tax refund).
• VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
• The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
• The goods or services acquired are used or intended to be used for making taxable supplies.

VAT input tax refund can be claimed only on the amount paid or intended to be paid before the  expiration of 6 months after the agreed date for the payment of the supply

Cost Accounting with Dynamic NAV

I am going to start a series on Cost Accounting module available in Dynamic NAV. Before, write to start on the topic, I want to give my introduction. I am a degree holder of ‘CMA’ Cost and Management Accountant. I have got experience under manufacturing, Capital Market, Trading & Distribution and IT industries. Being a Cost Accountant I have more interest in costing and Analysis of a product.

SO, Today, I wants to share my experience that “How to calculate product costing” by using the accounting software i.e. Dynamic NAV. We learned about Cost Accounting principles, Absorption, Allocations, Cost Centers and Cost Objects. Apart from that we learned about various types of costs i.e. Fixed, Variable, and Semi-Variable.

In Dynamic NAV, one of the reputed software in IT industry have designed in such a way where we can calculate product cost with apply of Cost principles and can identify various type of cost as mentioned above.

In below Steps i explained that how to do cost Accounting in Dynamic NAV.  

1. Cost Accounting and Allocations under finance module of Dynamic NAV-2017

1.       Cost Accounting starts with Chart of Accounts. First we need to make a chart of account and the same will copy in “Chart of Cost Type’ page.

 2. Now please define Cost Center and Cost Object in each of the GL account showing in the Chart of cost type.  For this, please go to ‘’Financial Management-Cost Accounting- Chart of Cost Type” and then Click on any GL Account No. and then click on Edit as showing in below SNIP.

When, you click on EDIT button the following page will open. Cost Center and cost Object need to  prepare in Cost center and Cost object Page. For learn how to prepare the Cost center and Cost object, please see point no. 3 below.

3.        3. In next step, please open ‘Cost Centers’. Cost centers can be set as dimensions and can be create as code also. If you want to get the cost centers from dimension, please click on ‘Get Cost Centers from Dimensions’ on the page of Cost Centers. Path: - ‘’Financial Management- Cost Accounting-Chart of Cost Centers”.

 4.       4. How System will identify that these dimensions are for Cost Centers or Cost Objects:-  The same will define in the Cost Accounting Setup. The below is the SNIP shot of Cost Accounting Setup where user can define the Cost Center dimensions and Cost Object dimensions. Once, user define the dimensions here than only on Cost Center and Cost Object page system will get the dimensions as Cost center and Cost Objects.

5.       5. Please note that the values of Cost centers will allocate into Cost objects. Generally, cost object values not allocated further. In, system we can use cost objects as final product also.

6.       6. Now, please open ‘Cost Objects’. Cost Objects can also be set as dimensions and can be making as code also. If you want to get the cost objects from dimension, please click on ‘Get Cost objects from Dimensions’ on the page of Cost objects. Path: - ‘’Financial Management- Cost Accounting-Chart of Cost Objects”.

7.       7. Cost Allocation:- As mentioned above, cost centers will be allocate in sub cost centers as well as in cost objects. The base of allocation can be sales units, production units and many other bases also. For doing the allocation, please open ‘Cost Allocation’ page and click on new button. It is very important in the allocation that which cost type or expenses user wants to allocate. In below SNIP ‘Credit to cost Type’ should be the cost type account no. which amount user wants to allocate and in Target cost type the GL account should mapped where allocation debit entry will hit.

  

8.       8. Calculation of Allocation Keys:- On cost allocation page, only parameters can be set for allocation. After this user need to run “Calculation of Allocation Keys”. Than system will show below:-

9.       9. Allocate Cost:- On cost allocation page, only parameters can be set for allocation. But, the allocation will take effect after run the report of ‘Allocate Cost’.  Please see the below SNIP:-

Please note, in Dynamic NAV we have two modules, Cost accounting under finance module and Manufacturing module. In manufacturing we can calculate material cost but in cost accounting we can calculate other all costs apart from material. Production BOM will use in manufacturing, but in production BOM page we do not have option to link any other cost apart from ITEMS/Material. Because of this reason, a cost sheet of final product will be come from two sides, cost accounting and manufacturing.

In my next blog, I will show you ‘’How to Create Cost Centers and Objects’’. Here I have only showed the steps involves in cost accounting but in my next blog I will give detail steps to create and use of Cost Center, Cost Objects and Allocation. Apart from that if allocation got wrong, than how the same can be rectify.