The VAT Process

The VAT business process

The process of managing VAT consists of these core steps or stages:

  1. Make the correct VAT decision.
  2. Calculate the VAT.
  3. Create legal documents reflecting the VAT position and send them to the customers.
  4. Store the relevant VAT details.
  5. Create VAT declarations per base country. (For an explanation of the term base country, see below.)
  6. Reconcile the VAT declarations to the General Ledger and EU sales reports.
  7. Ensure that VAT declarations can be audited when required.

The VAT process from an M3 perspective

VAT reporting

Companies usually create the VAT declaration some eight to ten days after the period end. From recording the original business transaction to the final payment of VAT to the local tax authorities, the integrated M3 Business Engine ensures that VAT is correctly calculated and recorded for each country. As the final step in the process, you complete the periodic VAT declaration, reconcile the declaration to the VAT control accounts, send the VAT return to the local tax authority, and make or receive a VAT payment. For an overview, see Reconciling and declaring VAT.

VAT report templates

Each country has its own specific layout for periodic VAT reporting but in principle, each business has to provide the same information to make and support their periodic VAT return. M3 Business Engine supports the requirement in a number of ways:

  • Standard VAT reports, both summary and detailed versions
  • User-defined, template-driven VAT reports, summary and detailed versions
  • Country-modified VAT reports, summary and detailed versions.

Tax authorities usually require companies to submit the VAT return in electronic format. Electronic returns also typically require additional information to be added to the generated return prior to final submission. M3 Business Engine supports such electronic returns. In addition, the company is able to reprint each type of report or return on demand. This is an essential feature for local VAT inspectors when they carry out their audits of a company's VAT declarations

VAT reconciliation

Amounts included in periodic VAT returns that the company subsequently will pay to (net payable) or receive from (net receivable) the local country VAT authorities, first need to be validated against the base financial records for accuracy and completeness. The VAT reconciliation is a standard periodic process supported by the M3 Tax Management module. In due course, you are able to reuse the VAT reconciliation to prove VAT return information as part of external audit requests. Since the number of transactions that could be included in one periodic VAT return can be very large, M3 Business Engine bases the reconciliation process upon exception reporting: only General Ledger transactions with potential VAT "mismatches" are included in an interactive work file for online user examination, investigation, and correction. See Initiate VAT Run and correct VAT transactions online