ERP Coding VAT Guide

Because of constantly altering business flows and rapidly changing EU regulations, it is crucial that companies working cross-border implement and maintain correct ERP VAT coding.

Where VAT coding is incorrect systems will consequently generate non-compliant sales invoices and purchase orders. Such systemic errors may lead to major problems with tax authorities, suppliers and purchasers, and can have serious cash-flow implications for EU businesses.

Issues surrounding ERP systems have become more acute as updates to regulatory framework have been introduced across the EU. Most companies buying and selling services in the EU will need to analyse and adapt their ERP VAT codes to take account of regularly changing legislation -failure to take account of changes to will result in VAT coding becoming structurally non-compliant. ERP VAT coding remains – and will remain – a crucial issue for companies buying and selling goods in Europe.

To ensure ERP systems are capable of enabling compliant VAT treatment for your business, it’s necessary to complete a comprehensive VAT transaction analysis and coding implementation.

What steps need to be taken?

Review your transactions

Review relevant transactions undertaken (sales, purchases and movement of own goods), and produce a matrix showing relevant information, such as ‘ship from’, ‘ship to’, etc.

Analyse your transactions

Analyse existing transactions and develop an appropriate format to review the transactions across the business. Once produced, correct VAT treatments for each transaction need to be determined. Future known (or possible) transactions can be added to ensure pro-active compliance. As part of the analysis, it is possible that VAT registration profiles will need to be reviewed because of changes in legislation

Compare existing codes and codes required

To pinpoint areas needing modification, a full comparison needs to be made between codes required and existing ERP VAT codes

Implement VAT code changes in to your ERP system

Once identified, the appropriate changes that are required to VAT code tables can be implemented to ensure VAT compliance. Once relevant changes have been made, new codes should be tested and staff trained

Review your position regularly

An ongoing procedure should be established to manage new transactions or changes to VAT legislation. VAT codes are dynamic and can be affected by changes in legislation – it is crucial that businesses seek support to ensure they are up to date with legislative changes. Where changes to business practice occur, or there is an addition of new goods or services, the analysis of such new transactions should be reviewed regularly.

Download our ERP Coding VAT Guide