[Feature Request] UK VAT Return & Making Tax Digital for VAT

[racitup]

Pledge your support for this project here!

This integration will allow ERPNext to be published as HMRC Recognised Software on their website.

Pre-requisites

Frappe general purpose OAuth2 client (see here) Multiple Company Tax registrations (see here) - Can be implemented with regional-specific custom fields on the Company Chart of Accounts Map (see here) see #25254

Feature Goals (Use cases & Requirements)

UK VAT

A VAT return report and digital integration with HMRC that supports all domestic and international goods and service purchase and sales according to UK VAT rules

• Deliver the 9-box UK VAT Return report format, including:
  • Provision for Suppliers and Customers to be marked with regions for specific VAT rules
  • Provision for invoice items to be marked with categories, specifically: Goods, Services and Mobile Phones/Chips
  • A mechanism that applies VAT rates (standard: 20%, reduced: 5%, zero: 0%) and accounts to invoice lines based on the two pieces of information above
  • Transactions not applicable for VAT reporting, e.g. local authority rates, must not have VAT applied and so will not be picked up by the report
  • The 9 boxes must be editable to allow the HMRC submission of special VAT accounting schemes
• OAuth2 & REST-based submission of figures
• Storage of VAT Registration Number (VRN), a 9-digit number

ERPNext constraints

• Must work on one-off purchase transactions with lines that are not pre-defined as Items
• Must work with the existing ERPNext tax features
• VAT must be captured as normal ledger entries in suitable accounts. This allows existing ledger reports to be used for analysis and debugging
• Tax must not be accounted for outside of the CoA; the report must draw its values from General Ledger entries so as to include correcting Journal Entries
• Although there is a "Tax ID" field, the UK has various Tax IDs that relate to a Company (Corporation Tax (UTR), PAYE, VRN, EORI) so the UK will need several IDs
• Although there are Sales/Purchase Taxes and Charges Templates, since they apply a rate to whole invoices and not individual invoice lines, they do not cater for invoices with lines with differing VAT rates and accounting requirements and so cannot be used in the general case or exclusively
• All features should be added as regional customisations in the regional module so as not to pollute the base UI

Recommendations

• It should be possible for Sales and Purchase VAT to be accounted on separate Accounts, though not essential
• The report should have a drill-down/detail table to allow for analysis
• Item Tax Template should be extended to allow application to Sales and Purchases separately, and ideally the Sales/Purchase Taxes and Charges template should be refactored to apply to line items instead of invoices

Setup

Boxes 1 to 4 can be generated directly from the Chart of Accounts using standard ERPNext functionality with the following setup:

• Tax Categories for Customers and Suppliers (separately) to identify their region: UK, EU or Rest of World (optional)
• Item Tax Templates set up to apply the correct VAT rate to the correct Account(s), for example:
  • A Reverse Charge Purchase at standard rate requires 20% to be applied to a VAT on Purchases Account (used for Box4), and -20% to also be applied to a VAT on Sales Account (used for Box1)
  • For common or stock items, Item Groups set up with Items in the correct Group, to automatically apply the correct Item Tax Template based on the Item & Tax Category (optional). Though Item Tax Templates can be applied manually to non-inventory Items

Additional DocTypes and fields (with fieldtype, etc) if any

See pre-requisites The CoA Map will need to be extended to include the following functionality:

• Item Tax Template name filter (simple pattern matching similar to SQL like) used to generate tax entries, since it may be necessary to select specific transactions for example Services and Mobile Phone Reverse Charges
• Selection of the related transaction value or tax value for the report
• Sales or Purchase filter to allow VAT to be reported to a single account but maintain report flexibility
• Negative - whether the value should be negated
• Sum multiple entries with the same output field name, allows a report value to be a composite of multiple values

Discovery (how will the user find the feature you are building)

• Chart of Accounts - View menu: HMRC VAT Returns
• Accounting -> Taxes -> HMRC VAT Returns
• Accounting -> Taxes -> Connect to HMRC
• Company -> HMRC Settings
• User -> Third Party Authentication

  Screen Mockups with buttons and any custom UI (TBD)

• HMRC user permissions definition (scopes); also used as auth fail destination
• (OAuth2 Authorisation flow: out-of-scope)
• VAT Information as tables (auth & VAT return submit success):
  • VAT return obligations (mandatory) with buttons to the VAT report specifying the period and PeriodKey
  • Submitted VAT returns (optional)
  • VAT liabilities (optional)
  • VAT payments (optional)
• VAT Report for a period with 2 use cases:
  • Manual period definition, OAuth2 not required, no submit button
  • Period passed from VAT return obligation button, VAT Return submit button
  • Displays error for failed submissions

    Business Logic

    Validations

• Company VRN number existence
• HMRC OAuth2 Provider existence

  Calculations

  See Reports section

  Logs

  None

  Links to existing DocTypes

  Links to VAT Accounts

  Reports

  Calculations performed according to this table which is not a complete picture: UK VAT return The report uses Journal Entries specified by the CoA Map for boxes 1 to 4 which are the primary VAT lines Box 5 is a sum based on boxes 3 & 4 Box 6 to 9 must be generated from the transactions used in boxes 1 to 5, to exclude non-VAT transactions, for example: salaries & exempt purchases

This has not been designed for special VAT accounting schemes, though the 9 boxes on the VAT Return will be editable to allow different schemes to be posted. Further information from HMRC

[barredterra]

Hi @racitup, some thoughts on your proposal:

VAT Registration Number (VRN)

Isn't this the same as "Tax ID"?

Sales VAT Account, Purchase VAT Account

There already exists Sales/Purchase Taxes and Charges Template and account type "Tax" for marking VAT accounts.

Reverse Charge rule applies

Reverse charge can be modeled with Sales/Purchase Taxes and Charges Template. For example, this one deducts the taxes I owe to the state because of reverse charge and adds the taxes I can claim back:

[racitup]

Hi Raffael, Thanks for your feedback, it's much appreciated! I've added rationale to my proposal above but also:

VAT Registration Number (VRN)

Isn't this the same as "Tax ID"?

Although there is a "Tax ID" field, the UK has various Tax IDs that relate to a Company (Corporation Tax (UTR), PAYE, VRN, EORI) so the UK will need several IDs. The VRN for example is not mandatory for all companies

Sales VAT Account, Purchase VAT Account

There already exists Sales/Purchase Taxes and Charges Template and account type "Tax" for marking VAT accounts.

Reverse Charge rule applies

Reverse charge can be modeled with Sales/Purchase Taxes and Charges Template. For example, this one deducts the taxes I owe to the state because of reverse charge and adds the taxes I can claim back:

Although there are Sales/Purchase Taxes and Charges Templates, since they apply a rate to whole invoices and not individual invoice lines, they do not cater for invoices with lines with differing VAT rates and accounting requirements and so cannot be used. Setting the VAT Accounts is a configuration setup for a company that will allow the VAT report to find the relevant ledger entries and work. For example you could have an item of goods not applicable to reverse charge and a service applicable to reverse charge on the same invoice. I'm considering a PR for the Item Tax Template though

[barredterra]

UK has various Tax IDs that relate to a Company

Same for Germany. In this case we could have Tax ID as a separate DocType with fields ID and Tax Category.

---

Accounting -> Taxes -> Connect to HMRC

I would see HMRC Settings as a DocType in the Integrations module.

[racitup]

I would see HMRC Settings as a DocType in the Integrations module.

I see all of these additional fields as custom fields added in the regional module. It's not an integration applicable to any other country.

[racitup]

@barredterra Though actually, it looks like the Reverse Charge rules apply to the whole of the EU, would some of these changes be useful for Germany? I could see if relevant parts could be inheritable somehow.

[Paul-STHL]

Greetings all. I have a working implementation here :

https://github.com/frappe/erpnext/issues/16025#issuecomment-611981655

Comments and feedback invited.

[racitup]

Greetings all. I have a working implementation here :

Good work but I think it's fair to say it doesn't implement a lot of what is required to be merged as a maintainable feature that integrates properly with ERPNext. It was a good decision to keep it as a separate app

[Paul-STHL]

Greetings all. I have a working implementation here :

Good work but I think it's fair to say it doesn't implement a lot of what is required to be merged as a maintainable feature that integrates properly with ERPNext. It was a good decision to keep it as a separate app

I like to get a minimally viable product quickly so we can talk about actual things to improve. If you have any constructive feedback on its maintainability, please feel free to offer it any time!

[racitup]

I like to get a minimally viable product quickly so we can talk about actual things to improve. If you have any constructive feedback on its maintainability, please feel free to offer it any time!

See design above

[nameduser0]

@deepeshgarg007 Hi Deepesh, could you review this accounting proposal please?

[nameduser0]

If anyone is interested in our HMRC support please visit https://www.casesolved.co.uk It seems one of the founders Umair is upset because we wouldn't give it away for free on their market so is closing the issues 😃