Changing VAT Rates on Business Central

When you have to change VAT rates, Microsoft want its users to make the transition as efficiently as possible so that your business can continue to run as smoothly as it did before. Due to the ongoing pandemic, we have already seen the UK opt for a lowering of the rate of VAT in particular industries. Several entities within Business Central control the rate of VAT: Customers, Vendors, Items just to name a few. With the current situation unfolding around us, VAT rates really should be something that can be amended quickly, giving you one less thing to worry about.

Once it’s established the user is authorised to make changes to the company’s VAT rates, all open orders have to be closed and fully posted. This allows the users to start with the new rates on a blank canvas, avoiding any unnecessary confusion.

Microsoft recommend a four stage guide when reconciling VAT rates:

  1. Finalise any remaining open orders and journals prior to the date of the rate changes.
  2. Add the new VAT rates to the system.
  3. Complete the VAT rate switch for all relevant elements, for example, items and vendors.
  4. On the date which the VAT rates are to change, any new documents created should be following the new VAT parameters the user set up.

The VAT Rate Change tool

Fortunately, Business Central has a VAT Rate Change tool that assists with conversion of VAT Rates on master data, journals and orders. It may not always be possible to close transactions before a rate change deadline so this is somewhere where the tool comes into play. There are however limitations to the tools application which we will touch on later.

So how can I go about using it?

To reach it, either use the magnifying glass search bar and type ‘VAT Rate Change Setup’. Alternatively, click the three small lines on the home page on Business Central which takes you to a more classic way of searching for things. Here, click ‘explore all’ at the top, which will take you to the ‘company hub’. From here on the ‘finance’ column, scroll down until you reach ‘setup’. Here you will find a direct link to ‘VAT Rate Change Setup’.

Once there, within the dropdown tabs for ‘Master Data’, ‘Journals’ and ‘Documents’, you select the appropriate posting group value. From here, the user has the choice to convert both the VAT product posting groups and general product posting groups or just one. In particular areas, you can apply filters to convert only a subset of values, for example, G/L accounts.

You can amend unit prices on the ‘Prices Incl. VAT’ dropdown tab for particular line types on orders. Choose which line types on orders for which you want to update unit prices. Unit prices on lines of type Item and Resource will always be updated.

Things to do before doing the VAT rate conversions

Any transactions that are currently on different rates to others need to be separated out. You can achieve this by creating new account types in the general ledger or by filtering them into groups by rate. In instances where you do choose to create new general ledger accounts, then you must also create general posting groups. It’s then suggested that you post as many documents as is possible. This just reduces the number of documents that get converted and keeps the numbers of unposted documents to a minimum. Finally, make sure all your data is backed up.

How does the VAT rate conversion process occur?

The VAT Rate Change tool performs rate conversions for master data, journals, and orders in different ways. The selected master data and journals will be updated by the new general product posting group or VAT product post group. For orders that have been fully or partially shipped, those that have been shipped will continue to use the previous general product posting group or VAT product posting group. New order lines will be created for unshipped items and set to use the new VAT or general product posting groups. Also, item charge assignments, configuration templates for items, reservations, and item tracking information will be updated accordingly.

Setting up the product posting group conversion

Like before, get to the ‘VAT Rate Change Setup’ page. From there, click either the VAT Prod. Posting Group Conv. or Gen Prod. Posting Group Conv. And from here fill in the current posting group in the ‘from code’ section and what it’s changing to in the ‘to code’ field.

Performing the VAT rate conversion

Fortunately, before doing the conversions, a test can be done. This test just requires the user to follow the instructions mentioned in the following paragraph. However, instead of following through, be sure to UNCHECK the boxes ‘Perform Conversion’ and ‘VAT Rate Change Tool Completed’. During test conversion, the Converted field in the VAT Rate Change Log Entry table is cleared and the Converted Date field in the VAT Rate Change Log Entry table is blank. Following this test conversion, you can view the results by choosing VAT Rate Change Log Entries. Make sure each entry is verified before you proceed to complete the real conversion.

What doesn’t convert?

Microsoft have provided a substantive list of all the things the VAT Rate Change tool does not affect. This includes:

1. Sales or purchase orders and invoices where shipments have been posted. These documents will be posted using the current VAT rate.

2. Documents that have posted prepayment invoices. The VAT rate change tool will skip these documents and you will have to manually update them.

3. Partially shipped or received Sales or Purchase orders with warehouse integration.

4. Drop shipments.

5. Special orders.

6. Assembly orders.

7. Service contracts.

8. Credit memos.

9. Return orders.

10. Prices on Items (master data)

11. Prices on Sales Prices (master data)

12. Business Posting Groups on Customers and Vendors.

Be sure to read Microsoft’s own piece on changing VAT rates. We realise that VAT can be a daunting topic. If you would like help or advice on VAT within Business Central, please contact us for further information.