How to Avoid VAT Chaos in Dynamics 365
When it comes to VAT in Dynamics 365, it’s often not the large international transactions that cause issues – but the small, everyday details. In many mid-sized companies, errors and uncertainty arise because the system is not configured correctly – or because VAT is still handled manually in practice. This costs time, resources, and, in the worst case, compliance.
In this article, we take a closer look at what typically goes wrong, the potential consequences, and how you, as a CFO or finance lead, can minimize risk and get your VAT processes under control once and for all.
What typically goes wrong?
Several AlfaPeople experts point out that many companies either:
- Have not set up VAT correctly in Dynamics 365
- Are not aware of the features available to them
- Or still handle VAT manually – even in a modern ERP system
This can lead to errors in VAT calculation, incorrect handling of customers and vendors with multiple VAT numbers, and complex manual workflows at every month-end close. As Benita Christensen explains in an interview:
“Even if they have Dynamics 365, they may not be using Advance Tax Calculation – and then they don’t realize that some of their issues could be solved automatically.”
Real-life examples: VAT with post-its and panic
Many companies only discover the issues when the consequences appear:
- A Danish company invoices with Danish VAT – even though the goods are shipped to Germany. This results in a credit note and an unhappy customer.
- The EU sales list does not match reality because an employee forgets that a vendor has multiple VAT numbers.
- A company uses multiple systems and must export and consolidate data manually every month – a process that easily leads to errors and overlooked entries.
“We are currently working with a customer who manually moves data between three entities every month because they operate in China, Europe, and the US. It’s a huge reconciliation effort – and extremely vulnerable,” says Lene Sørensen from AlfaPeople.
What are the consequences?
Incorrect VAT setup is not just a technical issue – it’s a business risk. The most common consequences include:
- Credit notes and rework due to incorrect VAT charges
- Incorrect reporting to authorities, especially EU sales lists and Intrastat
- Fines and audits if errors are identified
- Loss of time and resources in the finance department
There is also an indirect impact: loss of credibility, both internally and with customers and partners.
“VAT follows the goods” – why it matters
A key principle in VAT handling – often overlooked – is that VAT follows the goods. This means that VAT is not necessarily determined by the company’s home country, but by where the goods are shipped from and delivered to.
Example:
Even if your company is based in Denmark and invoices a customer in the Netherlands, Danish VAT may not apply – especially if the goods are shipped from a warehouse in Germany.
Dynamics 365 can handle this – but only if it is correctly configured with tax groups, tax codes, and the appropriate logic in Advance Tax Calculation.
How do you avoid chaos?
Avoiding VAT chaos in Dynamics 365 does not necessarily require a major implementation – but it does require the right steps:
- Map your physical goods flow – especially across borders
- Verify VAT registrations in relevant countries
- Check whether customers and vendors have multiple VAT numbers
- Actively use the system – not just for passive bookkeeping
- Consider implementing Advance Tax Calculation – especially if you operate internationally
Ready to clean up your VAT setup?
VAT may not be the most exciting topic – but it is critical for compliance, efficiency, and customer collaboration.
Contact us for an informal discussion if you want to avoid common pitfalls and ensure your VAT setup in Dynamics 365 aligns with your business reality.
