Non-deductible VAT
Important
The functionality of non-deductible VAT in Polish Localization will be deprecated in the version of the application compatible with Business Central 2025 Release Wave 1 (BC26 - April 2025). Therefore, we recommend that you enable the standard non-deductible VAT functionality on the VAT Setup page. For more information on the handling of non-deductible VAT in Business Central, please read Set up VAT.
In some cases, input (purchase) VAT cannot be deducted in 100%, which means that only part of the VAT amount can be shown in the VAT register, and the remaining part should be added to the purchase amount and posted as costs.
Note
In the current version of Polish Localization where a standard handling of non-deductible VAT is enabled on the VAT Setup page, posting a purchase transaction with not fully deducted VAT amount is not allowed. When you purchase a fixed asset, the non-deductible part of the VAT amount is not added to the purchase value of the fixed asset and is not posted as part of the acquisition cost.
The standard Business Central W1 functionality provides support for all transactions, including inventory and fixed assets.
Setting up Non-deductible VAT
Non-deductible VAT in the Standard Business Central W1 Functionality
Note
The Enable Non-Deductible VAT field on the VAT Setup page is enabled in the standard Business Central W1 version.
If you only use a single percentage rate for non-deductible VAT that does not change depending on the VAT settlement date, use the standard settings. To define required settings
- Choose the
icon, enter VAT Setup, and then choose the related link. - On the VAT Setup page, select the Multiple Non-Deductible VAT % field.
- On the VAT Setup page, select VAT Posting Groups on the ribbon, and then select VAT Posting Setup.
- On the VAT Posting Setup page, select the line that contains the selected code combination in VAT Bus. Posting Group and VAT Prod. Posting Group fields, and then type a value in the Non-Deductible VAT % field and set the Non-Deductible VAT Allowed option to Allowed.
If want to you use multiple percentages for non-deductible VAT calculation depending on the VAT settlement date, use the following settings. To define required settings
Choose the
icon, enter VAT Setup, and then choose the related link.On the VAT Setup page, select the Multiple Non-Deductible VAT % field.
On the VAT Setup page, select VAT Posting Groups on the ribbon, and then select VAT Posting Setup.
On the VAT Posting Setup select the lines with a specific code combination in VAT Bus. Posting Group and VAT Prod. Posting Group, set the Non-Deductible VAT Allowed option to Allowed, and then select the Non-Deductible VAT action.
On the Non-Deductible VAT Setup page select New on the ribbon and fill in the following fields:
- Valid From - Specify the starting date of the period in which the non-deductible VAT percentage rate set in the Non-Deductible VAT % field will be valid.
- Non-Deductible VAT % - Specify the percentage rate of non-deductible VAT that will be valid for the VAT calculation in the period starting from the date set in the Valid From field.
Important
When you enable the functionality in the Enable Non-Deductible VAT field on the VAT Setup page, a process is run to update open and posted documents and non-deductible VAT % rate settings.
If document data and settings have not been updated when enabling the standard functionality of non-deductible VAT, on the VAT Settings - Other page, enable the following functions accordingly: Update Entries and Documents for Non-Deductible VAT Update Multiple Non-Deductible VAT %
Settings for Specific Calculation Types
Note
The standard Business Central W1 functionality does not support transactions with the calculation type set to Full VAT.
The Non-deductible VAT functionality requires additional settings for purchase transactions, where Reverse Charge is selected in the VAT Calculation Type field.
To define settings for the Reverse Charge type:
On the VAT Posting Setup page, select the line with a combination of groups used to register purchases with reverse charge amounts. Then, choose the Edit button.
On the VAT Posting Setup Card page, on the Purchases FastTab, fill in the Rev. Charge Curr. Adjmt. Acc. field.
Important
The account selected in the Rev. Charge Curr. Adjmt. Acc field will be used to automatically post the non-deductible input VAT amount, but only the exact amount that is calculated taking into account the difference between exchange rates used to calculate the net amount and VAT amount. The part of the non-deductible purchase VAT amount that results from the calculation of the VAT amount based on the exchange rate applicable for the net amount will be posted in a standard way, which means it will be added to the net value.
Posting VAT Purchase Transactions with Non-deductible VAT
To post a purchase document with a VAT amount that is partially deductible, enter a purchase order or a purchase invoice in a standard way, by using the VAT posting groups for the combination of which the non-deductible VAT setup was defined. Using the previously defined settings, the system splits the calculated VAT amount accordingly. This is displayed on the Statistics window of the purchase document.
Note
If the Multiple Non-Deductible VAT field is selected on the VAT Setup page, the VAT Settlement Date in the purchase invoice/order line is checked to determine whether the VAT amount is to be a non-deductible one, according to the setup, that is whether this settlement date is within the period specified by the dates in the Valid Fromon the Non-Deductible VAT Setup page.
Posting a Document with a VAT Posting Group Combination with Normal in the VAT Calculation Type Field
To post the purchase invoice with a non-deductible VAT amount
To post a purchase document with a non-deductible VAT amount, enter a purchase order or a purchase invoice in a standard way by using the VAT posting groups set for the combination of which the non-deductible VAT setup was defined.
If you enable the Multiple Non-Deduct. VAT % field on the VAT Setup page, the VAT settlement date should be in the period starting from the date that is entered in the Valid From field on the Non-Deductible VAT Setup page for the selected combination of VAT posting groups.
In the purchase invoice, you have created, on the ribbon, select Invoice, Statistics.
The program opens the Purchase Statistics page on the Lines FastTab, you can view details of calculated amounts.
The fields such as: VAT %, Line Amount, VAT Base, VAT Amount, Amount incl. VAT show total amounts for the whole purchase invoice, which include both the deductible VAT and non-deductible VAT amounts.
The fields such as: the Non-Deductible VAT %, Non Deductible VAT Base, Non-Deductible VAT Amount, Deductible VAT Base, Deductible VAT Amount fields show the result of calculation of VAT non-deductible and deductible amount parts.
Tip
To check the on-deductible VAT base and amount on the Statistics page. on the General FastTab select, a value in the No. of VAT Lines.
Checking the Non-deductible VAT Amount on a Posted Purchase Invoice
To check the non-deductible VAT amount on the posted purchase invoice:
Choose
icon, enter Posted Posted Purchase Invoice, and then select a related link.On the Posted Purchase Invoice page, select Invoice, and then the Find Entries action.
On the Find Entries page, choose the G / L Entry table and select Show Related Entries.
Select Back to close the General Ledger Entries page.
On the Find Entries page, select the VAT Entry line or Detailed VAT Entry and choose Show Related Entries.
Posting a Document with a VAT Posting Group Combination with Reverse Charge VAT in the VAT Calculation Type Field
A non deductible VAT amount in the purchase transaction with the reverse charge VAT is usually posted in a standard way. The only exception is when the currency exchange rate to calculate the purchase net value is other than the currency exchange rate used to calculate VAT amount. In such a case, the program uses the G/L account specified in the Rev. Charge Curr. Adjmt. Acc. field on the VAT Posting Setup page to post the non-deductible VAT amount into costs (only the difference resulting from applying various exchange rates.
Example:
A purchase for EUR 100
VAT 23% (reverse charge) 50% non-deductible.
Net Value EUR 100 * currency exchange rate 4,00 = PLN 400
Sales VAT 23% * net value of EUR 100 = EUR 23* exchange rate 4,00 = PLN 92
Sales VAT 50% * 23% * net value of EUR 100 = EUR 23* exchange rate 4,00 = PLN 46
Cost Amount = net value (PLN) + non deductible part of the purchase VAT amount = = PLN 446
Calculation of the VAT amount based on a different exchange rate ( 1 EUR = 5 PLN)
Difference in the sales VAT amount = (EUR 23 * 5,00) – (EUR 23 * 4,00) = (PLN 23 * 4,00) = 23 PLN
Difference in the calculated purchase non-deductible VAT = 50% * ((23 EUR * 5,00) – (23 EUR * 4,00)) = 11,50 PLN
Difference in the deductible purchase VAT amount = 23% * ((EUR 5,00 * 5,00) – (23 EUR * 4,00)) – purchase non-deductible VAT = 11,50 PLN
Non-Deductible VAT Functionality in Polish Localization
Note
The Enable Non-Deductible VAT field on the VAT Setup page is disabled.
To enable the automatic calculation of non-deductible VAT, you should define the proper settings for calculating the input (purchase) VAT amount.
To define required settings
Choose
icon, enter VAT Posting Setup, and then select a related link.On the VAT Posting Setup select the lines with a specific code combination in VAT Bus. Posting Group and VAT Prod. Posting Group fields and then select Non-Deductible VAT.
On the Non-Deductible VAT Setup page select New on the ribbon and fill in the following fields:
- Valid From - Specify the starting date of the period in which the non-deductible VAT percentage rate set in the Non-Deductible VAT % field will be valid.
- Non-Deductible VAT % – Specify the percentage rate of the non-deductible VAT amount that will be valid for the VAT calculation in the period starting from the date set in the Valid From field.
Settings for Specific Calculation Types
The non-deductible VAT functionality requires additional setup for purchase transactions where the VAT Calculation Type field is either Reverse Charge or Full VAT.
To define settings for the Reverse Charge type:
On the VAT Posting Setup page, select the line with a combination of groups used to register purchases with reverse charge. Then, choose the Edit button.
On the VAT Posting Setup Card page, on the Purchases FastTab, fill in the Rev. Charge Curr. Adjmt. Acc. field.
Important
The account selected in the Rev. Charge Curr. Adjmt. Acc. field will be used to automatically post the non-deductible input VAT amount. However, only the exact amount that is calculated taking into account the difference between exchange rates used to calculate the net amount and VAT amount. The part of the non-deductible purchase VAT amount that results from the calculation of the VAT amount based on the exchange rate applicable for the net amount will be posted in a standard way, which means it will be added to the net value.
To define settings for the Full VAT type:
On the VAT Posting Setup page, select the line with a combination of the posting groups used to register purchases with VAT only (full VAT) (e.g. SAD documents). Then, select the Edit on the ribbon.
On the VAT Posting Setup Card page, on the Purchases FastTab, fill in the VAT Non-Ded. VAT Cost Account field.
Important
The system uses the VAT Non-Ded. VAT Cost Account field to post the non-deductible purchase VAT amount. In this type of transaction, a non-deductible VAT amount cannot be added to the net value, because the costs in documents with full VAT are not posted at all (only the VAT and payable amounts).
The VAT Non-Ded. VAT Cost Account field is mandatory, if the Full VAT* type has been set up. For other calculation types, the field can be filled in optionally. If the field is filled in, the non-deductible VAT amount is posted on the account selected in the field.
Posting VAT Purchase Transactions with Non-deductible VAT
To post a purchase document with a VAT amount that is partially deductible, enter a purchase order or a purchase invoice in a standard way by using the VAT posting groups for the combination of which the non-deductible VAT setup was defined. Using the previously defined settings, the system splits the calculated VAT amount accordingly. This is displayed on the Statistics page of the purchase document.
Note
Based on the VAT Settlement Date in the purchase invoice/order line, the program determines whether the vat amount from a given line is to be the non-deductible one, according to the setup, that is whether it is within the period specified by the dates in the Valid Fromon the Non-Deductible VAT Setup page.
Posting a Document with a VAT Posting Group Combination with Normal in the VAT Calculation Type Field
To post the purchase invoice with a non-deductible VAT amount
Create a purchase invoice in a standard way by using the VAT posting groups for the combination of which you have set the non-deductible VAT settings, and the VAT date is within the period that starts from the date set in the Valid From on the Non-deductible VAT Setup page for a selected combination of VAT posting groups.
In the purchase invoice, you have created, on the ribbon, select Invoice, Statistics.
The program opens the Purchase Statistics page on the Lines FastTab, you can view details of calculated amounts.
The fields such as: VAT %, Line Amount, VAT Base, VAT Amount, Amount incl. VAT show total amounts for the whole purchase invoice, which include both the deductible VAT and non-deductible VAT amounts.
The Non-Deductible VAT %,Non Deductible VAT Base, Non-Deductible VAT Amount show values of a calculated non-deductible VAT.
Tip
To check the non-deductible VAT base and amount on the Statistics page. on the General FastTab select, a value in the No. of VAT Lines.
Checking the Non-deductible VAT Amount on a Posted Purchase Invoice
To check the non-deductible VAT amount on the posted purchase invoice:
Choose
icon, enter Posted Posted Purchase Invoice, and then select a related link.On the Posted Purchase Invoice page, select Invoice, and then the Find Entries action.
On the Find Entries page, choose the G/L Entry table and select Show Related Entries.
Select Back to close the General Ledger Entries page.
On the Find Entries page, select the VAT Entry line or Detailed VAT Entry and choose Show Related Entries.
Posting a Document with a VAT Posting Group Combination with Reverse Charge VAT in the VAT Calculation Type Field
A non-deductible VAT amount in the purchase transaction with the reverse charge VAT is usually posted in a standard way. The only exception is when the currency exchange rate to calculate the purchase net value is other than the currency exchange rate used to calculate VAT amount. In such a case, the program uses the G/L account specified in the Rev. Charge Curr. Adjmt. Acc. field on the VAT Posting Setup page to post the non-deductible VAT amount into costs (only the difference resulting from applying various exchange rates.
Example:
A purchase for EUR 100
VAT 23% (reverse charge) 50% non-deductible.
Net Value EUR 100 * currency exchange rate 4,00 = PLN 400
Sales VAT 23% * net value of EUR 100 = EUR 23 exchange rate 4,00 = PLN 92
Sales VAT 50% * (23% * net value of EUR 100 = EUR 23) exchange rate 4,00 = PLN 46
Cost Amount = net value (PLN) + non deductible part of the purchase VAT amount = = PLN 446
Calculation of the VAT amount based on a different exchange rate ( EUR 1 = PLN 5)
Difference in the sales VAT amount = (EUR 23 * 5,00) – (EUR 23 * 4,00) = (PLN 23 * 4,00) = PLN 23
Difference in the calculated purchase non-deductible VAT = 50% * ((EUR 23 * 5,00) – (EUR 23 * 4,00)) = PLN 11,50
Difference in the deductible purchase VAT amount = 23% * ((EUR 5,00 * 5,00) – (EUR 23 * 4,00)) – purchase non-deductible VAT = PLN 11,50
Posting a Document with a VAT Posting Group Combination with Full VAT in the VAT Calculation Type Field
If only the (full) VAT amount is registered, the non-deductible VAT amount only (e.g. based on a CCD document (PZC )) is posted to the cost account that was selected on the VAT Posting Setup page. In this type of transaction, a non-deductible VAT amount cannot be added to the net value, because the cost amount in documents with full VAT are not posted at all (only the VAT and payable amounts are posted).