Making Tax Digital in the United Kingdom

Her Majesty's Revenue and Customs (HMRC) is implementing the first step of Making Tax Digital, which imposes new requirements on VAT registered businesses above the VAT threshold. Requirements will be implemented in phases. In the first phase, with a deadline in April, 2019, the following requirements took effect:

  • Keeping records digitally

    Businesses must now keep all their records digitally. For users of ERP systems this will not have any impact since they already keep their records digitally in these systems.

  • Submit VAT return electronically using software recognized by HMRC.

Business Central supports Making Tax Digital and the GovTalk service.

Making Tax Digital for VAT Capabilities in Dynamics 365 Business Central

In Business Central you can use the VAT Return report for creating VAT reports. The Making Tax Digital VAT features extend this capability to communicate with HMRC. For example, 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 VAT returns to HMRC
  • View the VAT return
  • View VAT payments with HMRC
  • View VAT 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 web site, 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.

Note

If you are using Business Central on-premises, there are some additional steps to set up the features for Making Tax Digital. In Business Central online, these happen automatically. For more information, see the Additional Setup Requirements for On-Premises Versions section.

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Service Connections, and then choose the related link.

  2. On the Service Connections page, choose HMRC VAT Setup.

    Note

    If you use Business Central on-premises, you must also provide a client ID and client secret. If you are not sure what these are, contact your partner.

  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, that the authorization code is valid for 10 minutes and must be entered into Business Central before expiry in order to set up the connection correctly.

    Note

    Business Central will use the authorization 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.

Additional Setup Requirements for On-Premises Versions

  1. You must add a VAT report configuration on the VAT Reports Configuration page.

    a. Create a new configuration, and choose the VAT Return type.
    b. Give the configuration a descriptive name, such as HMRC MTD.
    c. In the Suggest Lines Codeunit ID field, choose codeunit 745.
    d. In the Content Coneunit ID field, choose codeunit 10531.
    e. In the Submission Codeunit ID field, choose codeunit 10532.
    f. In the Validate Codeunit ID field, choose codeunit 10533.
    g. Fill in the remaining fields as necessary. Hover over a field to read a short description.

  2. You must edit the VAT report setup on the VAT Report Setup page.

    a. Expand the Return Period FastTab.
    b. In the Report Version field, choose the VAT report configuration that you created in the previous step.
    c. In the Manual Receive Codeunit ID field, choose codeunit 10534.
    d. In the Receive Submitted Return Codeunit ID field, choose codeunit 10536.
    e. Optional: If you want to automatically update the information about VAT obligations, specify how often to do so in the Update Period Job Frequency field, and then specify codeunit 10535 in the Auto Receive Codeunit ID field.
    f. Fill in the remaining fields as necessary. Hover over a field to read a short description.

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 HMRC

  1. Choose the Lightbulb that opens the Tell Me feature 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.

Note

Do not create VAT return periods manually when submitting VAT Returns to HMRC. VAT return periods must be retrieved from HMRC using the steps above. Creating them manually will result in inability to submit VAT Returns.

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 Lightbulb that opens the Tell Me feature 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 the Suggest Lines action.
  5. Fill in the fields as necessary, and then choose the OK button. Hover over a field to read a short description.

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 the Release action. 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 the Submit action.

A successful submission of the VAT Return will result in a Status = Accepted on the VAT Return. This status is based on the submission result at the HMRC. If the status after submission is not set to Approved a previously submitted VAT Return can be retrieved from the HMRC.

To receive previously submitted VAT Returns from HMRC

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter VAT Return Periods, and then choose the related link.
  2. On the VAT Return Periods page, choose the relevant VAT return period.
  3. On the VAT Return Period Card page, choose the Receive Submitted VAT Returns action.

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 Lightbulb that opens the Tell Me feature 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 Lightbulb that opens the Tell Me feature 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.

Not in scope of this feature

This integration to HMRC and support of Making Tax Digital for VAT does not include support for:

  • Group VAT scenarios

    While it is possible that your Business Central submits VAT on behalf of a group of companies that share a VAT registration number (Group VAT) there is no built in mechanism for retrieving VAT entries from other companies in the group. There are currently no plans to support Group VAT and we refer to Microsoft partners to add this functionality.

  • Agent services

    Agents can submit VAT returns on behalf of their customers and HMRC has solutions for that. This is currently not supported by Business Central.

Connection errors with HMRC

If you experience "The operation has timed out" errors on an on-premises installation of Business Central please check your firewall settings that may be blocking the communication to and from HMRC.

Testing the integration to HMRC in a sandbox

Due to a limitation at HMRC, it is not possible to send test submissions of VAT Returns and test the integration in non-production scenarios. You can only send real VAT returns. Certain online documentation at HMRC refers to the term Sandbox. This refers to an environment for software developers such as Microsoft and others for testing their features during development. This environment is not intended for customer testing, and it is unrelated to Business Central sandboxes.

See Also

United Kingdom Local Functionality
The GetAddress.io UK Postcodes Extension
The VAT Group Management Extension
Customizing Business Central Using Extensions
Working with Business Central

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