Making Tax Digital for VAT in Dynamics 365 Business Central

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Business Central has functionality to create VAT reports (and VAT Returns). The Making Tax Digital VAT features extend this foundational VAT capability to allow for communication with HMRC.

The Making Tax Digital VAT extension lets you:

  • Retrieve VAT obligations from HMRC
  • Get reminded about VAT obligations that are approaching or already past due
  • Submit and view VAT returns to HMRC
  • View VAT payments and liabilities with HMRC

Set up Making Tax Digital for VAT

The Making Tax Digital feature uses a service connection to communicate with HMRC. To make it easy to establish communications, Business Central provides the HMRC VAT Setup service connection, which contains most of the information needed to communicate with HMRC. To finish the connection, you must give the Dynamics 365 Business Central MTD VAT application the authority to interact with HMRC on your behalf. Microsoft manages the Dynamics 365 Business Central MTD VAT application on the HMRC website, and the application is a requirement for the connection. You give permission by requesting an authorization code from HMRC, and then copying the code to the service connection. The following steps describe how to set up the service connection.

  1. Choose the icon, enter Service Connections, and then choose the related link.
  2. On the Service Connections page, choose HMRC VAT Setup.
    Note. If you use an on-premises version of Business Central you will also need to provide a client ID and client secret. If you are not sure what these are, contact your partner. They can get the information for you on PartnerSource.
  3. To open a GOV.UK website and request an authorization code, choose Process, then Request Authorization Code, and then choose Continue.
  4. Sign in with your HMRC credentials. To allow the Dynamics 365 Business Central MTD VAT application to interact with HMRC on your behalf, choose Grant authority.
  5. A confirmation page displays "Authorization granted" and an authorization code. To copy the authorization code, choose Copy.
  6. Return to the service connection you are setting up, and paste the authorization code in the Enter Authorization Code field. Then choose Enter.
    Note. Business Central will use the authorisation code to test whether the service connection can communicate with HMRC. If the connection is successful, a confirmation page prompts you to verify your VAT registration number. To open the Company Information page and verify the number is correct, and the one you have used to register with HMRC, choose Yes.

VAT Obligations

HMRC maintains a list of VAT obligations for companies, which are the periods for which they must report VAT and the due date for the report. HMRC exposes this information through their APIs, which enables Business Central to retrieve the obligations. Business Central stores VAT obligations as VAT Return Periods, and uses them to:

  • Remind you about VAT returns that are due or overdue.
  • Automatically enter start and end dates when you create VAT returns.

To retrieve the VAT return periods from the HMRC:

  1. Choose the icon, enter VAT Return Periods, and then choose the related link.
  2. On the VAT Return Periods page, choose Process, and then choose Get VAT Return Periods.
  3. Enter the Start Date and End Date to specify the period for which to get the VAT return periods, and then choose OK.

The VAT obligations are now retrieved from HMRC and you can view them on the VAT Return Periods page. A confirmation page shows how many obligations were retrieved.

VAT Returns

Use this report to submit VAT for sales and purchase documents, such as purchase and sales orders, invoices, and credit memos.

To create and submit a VAT return:

  1. Choose the icon, enter VAT Return Periods, and then choose the related link.
  2. On the VAT Return Periods page, choose Process, and then choose Create VAT Return.
  3. If you want to open the VAT return, on the confirmation page, choose Yes.
  4. On the VAT Return page, to calculate and prepare the amounts for the VAT return, choose Process, and then choose Suggest Lines.
  5. Fill in the fields as necessary, and choose OK. VAT amounts display in the Report Lines section on the VAT Return page.
  6. To release the VAT return and prepare it for submission, choose Process, and then choose Release. After you release a VAT return you cannot edit it. If you need to change something, you must reopen the return. Releasing the VAT return does not submit it.
  7. To submit the VAT return to HMRC, choose Process, and then choose Submit.

VAT Liabilities and Payments

If you want to check the status of your VAT, you can retrieve information from HMRC about your VAT liabilities and payments. VAT liabilities are the amounts that you owed to HMRC, and show if there are outstanding amounts to be paid. VAT payments are the actual payments your company has made to HMRC.

To retrieve VAT liabilities:

  1. Choose the icon, enter VAT Liabilities, and then choose the related link.
  2. On the VAT Liabilities page, choose Process, and then select Get Liabilities.
  3. Enter the Start Date and End Date of the period to retrieve VAT liabilities for, and then choose OK.

The VAT liabilities are now retrieved from HMRC and you can view them on the VAT Liabilities page. A confirmation page shows how many liabilities were retrieved.

To retrieve VAT payments from HMRC:

  1. Choose the icon, enter VAT Payments, and then choose the related link.
  2. On the VAT Payments page, choose Process, and then choose Get Payments.
  3. Enter the Start Date and End Date of the period to retrieve VAT payments for, and then choose OK.

The VAT payments are now retrieved from HMRC and you can view them on the VAT Payments page. A confirmation page shows how many VAT payments were retrieved.