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SAP S/4 HANA Localisation | United Kingdom

UK Localisation

UK Localisation Overview

The complexity of UK localisation is very low, which makes the SAP solution a good option. Achievable very easily with a minimum configuration effort compared to many other countries.

Main SAP localisation points

Financial Accounting
Taxation
Treasure (Accounts Payable and Bank Accounting)

General Information

ISO Codes: GB / GBR
Country Codes: +44
Capital: London
Official Language(s): English (Main Language)
Currency: GBP (British Pound Sterling)

Currency

The local currency of the United Kingdom is the Pound Sterling or also known as the Great Britain Pound (GBP / symbol £ ), and companies must prepare their legal reports in this currency. No other additional currencies, like hard currency or index currency are legally required, but of course most of the companies are multinationals companies and use the group currency for reporting purposes.

Companies can trade (buy and sell) in any other currency, but the amounts must be converted to GBP for reporting and tax purpose.

Fun fact: In the UK, a penny is a coin worth 1/100th of a pound, as in US, a cent is a coin worth 1/100th of a dollar. The plural of penny is pence, or it can simply refer to it as "p" (1p, 2p, 5p, 10p, 20p, 50p).

The slang for pound is "quid", while in the US, the slang for dollar is "buck".

Language

The main language of the United Kingdom is English.

If multiple languages are required in the SAP implementation, these languages must be installed.

Fun fact: Despite the main language being English, in some other parts of the UK they can have a completely different language.

Wales, they can speak Welsh.
Scotland, they can speak Gaelic.
Northern Ireland, they can speak Irish Gaelic.

localisation

What is HMRC?

We can't start talking about UK or UK Taxation without a brief introduction about HMRC (Her/His Majesty's Revenues and Customs).

HMRC is the UK’s tax, payments and customs authority.

In other words, it is the department of the UK Government responsible for administering and collecting taxes in the UK.

Fun fact: The UK Government uses SAP with the Public Sector industry solution to deliver better public value with integration between processes, budgeting and grant and fund management, while staying agile.

HMRC

Making Tax Digital (MTD)

Making Tax Digital (MTD) is a UK government initiative that sets out a vision for the 'end of the tax return' and a 'transformed tax system', announced in 2015 and originally intended to be in place by 2020. HMRC states that the main goal of MTD is to make tax administration more effective, more efficient and simpler for taxpayers.

The changes are expected apply to a wide range of taxpayers, including most businesses, micro-businesses, self-employed people and landlords, as well as individual taxpayers.

Making Tax Digital is a key part of the government’s Tax Administration Strategy. It will help reduce the tax gap by requiring businesses and individuals to:

Keep digital records
Use software that works with Making Tax Digital
Submit updates every quarter, bringing the tax system closer to real-time

The benefits of Making Tax Digital

Making Tax Digital supports HMRC’s plans to digitalise the tax system. It will:

Make it easier for individuals and businesses to get their tax right
Mean customers can integrate tax management with a range of business processes through software
Contribute to wider productivity gains for businesses by encouraging digitalisation

It will help reduce the amount of tax lost to avoidable errors due to the:

Improved accuracy of digital records
Additional help built into many software products
Digital records being sent directly to HMRC

MTD

Financial Accounting

Accounting Principles

Except where other types of accounting principles, such as IFRS, may be required, UK companies are used to preparing their financial statements in accordance with UK GAAP, which is frequently amended. So it is necessary to pay attention on the FRS Financial Reporting Standard amendments.

FRS 100 Application of Financial Reporting Requirements
FRS 101 Reduced Disclosure Framework
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland
FRS 103 Insurance Contracts
FRS 104 Interim Financial Reporting
FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime

Fun fact: The primary difference between the two systems is that GAAP is rules-based and IFRS is principles-based

Finacial

Treasure (Accounts Payable and Bank Accounting)

SAP localisation offers most payment formats on the market to meet the specific requirements of major UK banks.

The main UK banks

Lloyds Bank
Barclays Bank
HSBC Bank
The Royal Bank of Scotland

The most common interbank payment schemes in UK

BACS (Bankers' Automated Clearing System)
- It's a regulated payment system and is one of the most common ways that money is sent and received from bank to bank
- Transfer 2-3 days
- Limited value £20m or £999m depends on conditions

CHAPS (Clearing House Automated Payment System)
- Transfer within seconds on working days excluding bank holidays
- Non-limited value
FASTER PAYMENT
- These are electronic payments that can be made online, over the phone, in a branch or using self-service machines.
- Transfer within 2 hours (As long as the receiving bank uses Faster Payments too, the payment will arrive almost immediately)
- Limited value £250.000,00
SWIFT (Society for Worldwide Interbank Financial Telecommunications)
- Transfer 2-5 days on average
- Non-limited value
SEPA (Single Euro Payments Area)
- Transfer 1-2 banking days
- Value limit depends on participants

SAP Payment Processing Flow

You can process your outgoing payments using predefined payment medium formats and bank statements for the United Kingdom as described in this section.

The following image map guides you through the payment process.

Treasure

Payment Medium Formats and Bank Statements

The GB_BACS format tree creates payment media for domestic, vendor payments and employee payments in the United Kingdom. The format complies with the standard header, data and trailer records for BACS telecoms transmissions.

If the third-party product used for communication with BACS cannot upload the format supplied by SAP, copy and adapt the existing format as necessary.

The payment medium program supports the creation of daily files, multi-processing day files, multi-file (bureau) submissions, and the alternative user number functionality.

Warning: GB_BACSBOX and GB_BACWAY formats are obsolete. Please use the GB_BACS format instead.

The following bank statements are available:

CAMT.053, version 2 (CAMT.053.001.02)
MT940

Master Data

Identification Numbers

Several transactions require that your business partners are identified using a specific tax or identification number. You maintain this information for each business partner in their master data.

Maintaining Withholding Tax Data for Suppliers

You configure tax data in the supplier master data so that withholding tax can be calculated and reported.

Business Partner Master Record

In the United Kingdom, business partners are identified by either their corporate or tax registration numbers. Several transactions require that your business partners are identified using a specific tax or identification number. You maintain this information for each business partner in their master data.

The solution offers six tax categories for the United Kingdom:

GB0 | <VAT Registration Number > | Valid for companies only
- Business Process: Electronic Customer Invoice and Electronic Supplier Invoice
- Description: A VAT registration number is a unique code issued to companies that are registered to pay VAT.
GB1 | <Passport Number> | Valid for natural persons only
- Business Process: Employee Master Record
- Description: Number assigned to an individual’s passport.
GB2 | <National Insurance Number (NI Number) > | Valid for natural persons only
- Business Process: Employee Master Record
- Description: The National Insurance Number is a number used in the United Kingdom in the administration of the National Insurance or social security system. It is also used for some purposes in the UK tax system.
GB3 | <Company Registration Number (CRN)> | Valid for companies only
- Business Process: Filing Statutory Reports
- Description: The Company Registration Number is to identify the company and confirm that is has been registered with Companies House as a legal entity.
GB4 | <Unique Tax Reference (UTR)>
- Business Process: Filing Statutory Reports
- Description: A Unique Tax Reference is unique to every UK taxpayer. Whether you are an individual or part of a partnership or company, a Unique Tax Reference is needed to file a tax return.
GB6 | <XI VAT registration (Northern Ireland Protocol)>
- Business Process: Northern Ireland Protocol
- Description: You need a VAT number starting with XI to trade under the Northern Ireland Protocol.

The VAT registration number of GB0, GB3, GB4, and GB6 must have the following format:

A maximum of 14 characters long
2-digit country/region ISO code for the first 2 characters
Entered continuously without any gaps

Hint: Do not forget to check the Natural Person field

Manage Business Partner Master Data

T-Code: BP
Fiori App: Manage Business Partner Master Data app
Role: FLVN00 Supplier (Fin. Accounting)

Identification Numbers

Section: Identification -> Tax Numbers
Maintain: Tax Category (GB0, GB1, GB2, GB3, GB4 and GB6)

Withholding Tax Codes

Section: Company Codes -> Withholding Taxes
Maintain:
- Withholding Tax Type
- Withholding Tax Code
- Subject to Withholding Tax ( Activate to be able to select the withholding tax type while creating the invoice)

Withholding Tax Codes - CIS Check Details (if necessary)

Section: Company Codes -> Vendor: Country-Spec. Enh. 2 -> Great Britain CIS Check
Maintain:
- Business Type | You define the type of business the subcontractor is operating (Sole Trader, Partnership, Trust or Company)
- Verification Status | You set the status of the subcontractor. Before a contractor engages with a subcontractor in a Construction Industry Scheme contract, they must verify the subcontractor with the UK's Tax Authority, HMRC
- Verification Number | HMRC provides the principal contractor with a verification number for the subcontractor that is being verified
- Tax Status | You define if and what percentage of withholding tax should be deducted from the payment to the subcontractor and paid over to HMRC by the principal contractor

Mater Data

Fiscal Year

The fiscal year in the UK runs from 6th April one year to 5th April the following year. It's also known as the 'tax year'.

SAP Fiscal Year Variant

Most company codes in UK are set up with the standard fiscal year variant "K4".

[ K4 ] Calendar year, January to December. Which contains twelve normal periods that correspond to the calendar months, plus 4 special periods for adjustments.

But other company codes are set up, to make it easier, with the "V3" variant or a "Z" variant from April to March.

[ V3 ] April to March, plus 4 special periods for adjustments.

Warning: To set it up correctly, the requirement must come from business, to respect what is best for the company.

UK Statement about the Fiscal Year

HMRC (United Kingdom Government) is aware of the complexity of its tax year and has made some studies and estimates to see the possibility to changing it.

In its own words, released in September 2021, the report "The end date of the UK tax year: exploring the potential for change" from the "Office of Tax Simplification" says:

"Moving to a tax year end date of 31 March would involve a substantial investment by the UK government and the private sector. It would entail major changes to legislation and to government and businesses’ systems and operating procedures.

The overall scale of what would be involved in a move to 31 March would be substantially lower than for 31 December, though the extent of the systems impacts could be comparable.

A move to 31 December would involve most of the transitional issues and ultimately be a much larger and costlier exercise.

Tax Simpification

Fiscal Year

SAP Configuration | Fiscal Year

Fiscal Year Setup

Fiscal Year Variant

T-Code: OB09

Set up the fiscal year variant in SAP.

Assign Company Code to Fiscal Year

T-Code: OB37

Company Code Global Data

T-Code: OB06

Check fiscal year variant.

Warning: The screens, path and information may be different from SAP to SAP, depending on the version. Those screens above are from SAP S/4 HANA.

Withholding Taxes

In United Kingdom, you need to withhold tax on a variety of expenditure, in accordance with the local regulations.

One example of Withholding tax in UK:

Construction Industry ("CIS" Construction Industry Scheme)
- WHT Rate of 20% (vendor registered under CIS)
- WHT Rate of 30% (vendor not registered under CIS)

Warning: Always talk to the company's tax team to understand their tax situation.

Procedure

Configure the necessary withholding tax settings in the system. This includes defining withholding tax types, tax codes, and so on.
Maintain the relevant withholding tax data for business partners.
Process withholding tax reporting (Statutory Reports app available on SAP Fiori Launchpad / DRC).

Withholding Tax Configuration

1. Checking Withholding Tax Countries/Regions

Make changes to the country/region ID in your system, if needed.

2. Defining Reasons for Exemption

You can define the tax exemption reason to waive the required withholding amount.

Example of exemption reasons available for United Kingdom is GP (Gross Payment Status).

3. Defining Withholding Tax Types for Payment Posting

You can define the withholding tax type for payment postings in order to withhold and calculate tax when you make a payment.

Withholding Tax Type: 01
Description: Construction Industry Scheme
Calculation Base Amount: Net Amount
Calculation Rounding Rule: Apply commercial rounding to withholding tax amount
Cash Discount: Cash discount calculation before withholding tax calculation
Post Withholding Tax Amount: Yes
Accumulation Type: No accumulation
Controls: Allow manual entry of withholding tax amount
Minimum/Maximum Base Amount: Withholding tax code level
Minimum/Maximum Withholding Tax Amount: Withholding tax code level
Central Invoice: No
Minimum Check: Minimum check at item level

4. Defining Withholding Tax Codes

Use withholding tax codes to specify the tax rates and any applicable exemptions, as per the local regulations.

Withholding Tax Type: 01
Withholding Tax Code: 20
Description: Registered Subcontractor
Official Withholding Tax Key: Not applicable (Leave this field blank)
Percentage Subject to Tax: 100
Posting Indicator: 1
Withholding Tax Rate (%): 20
Income Type: Not applicable (Leave this field blank)

Post Indicator

1: Withholding tax amount is deducted from the customer/vendor line item amount and/or bank line item, and a withholding tax line item automatically created.
2: (Grossing UP) The system automatically creates 2 withholding tax line items with opposing debit/credit signs. The withholding tax amount is then increased by the factor "1/(1-p)", where "p" is the withholding tax rate. You cannot choose this option if withholding tax scale apply. (This option is common used in countries like Argentina for foreign vendors)
3: The system automatically creates 2 withholding tax items with opposing debit/credit signs

5. Assigning Withholding Tax Types to Company Code

Assign withholding tax types to each company code for successful withholding tax calculation.

Company Code: Company Code ID
Withholding Tax Type: 01
Recipient Type: Not applicable (Leave this field blank)
Withholding Tax Agent: Yes (Check the box)
Withholding Tax Obligated From: 01/01/2015
Obligation to Withholding Tax Until: 12/31/9999
Withholding Tax Number: Not applicable (Leave this field blank)
Subject to Withholding Tax: Not applicable (Leave this field blank)
Self-Withholding Agent: Not applicable (Leave this field blank)
Exemption: Not applicable (Leave this field blank)

6. Activating Extended Withholding Tax

Activate extended withholding tax for each new company code to calculate and generate withholding tax report.

Company Code: Company Code ID
Company Name: Company Code Name
Extended Withholding Tax Activation Status: Activated

7. Determining Accounts for Withholding Tax

Define general ledger accounts for the withholding tax transactions. These accounts are required for each withholding tax posting.

Withholding Tax Reporting

Taxes withheld need to be reported to the tax authorities on regular basis, as mandated by tax regulations of the country or region.

WHT

Withholding Taxes Reporting

The withholding tax report is generated based on the information collected from specific supplier documents such as, supplier cleared invoices, supplier cleared credit memos, open down payments, and so on.

You can use the United Kingdom Withholding Tax report to generate the withholding tax declaration, and submit to the government.

You can use the Run Statutory Reports app to generate the Withholding Tax.

The system generates an XML file that meets the requirements for automatic submission to the government gateway.

Additionally, PDF documents get generated with the details of the tax that has been withheld. You can share the PDF output with the respective business partners.

Warning: This section is related with DRC reporting.

Points to Note

All Withholding Tax reports in DRC support Extended Withholding Tax only
Classical Withholding Tax reporting is not supported in the reports
GB DRC reports support Vendor side withholding tax reporting only
GB reports pick the following types of documents for reporting: Cleared Vendor Invoices, Cleared Credit Memos & Open Down payments

Generating the Withholding Tax Report

1. To get a list of the reports that require actions

Enter selection parameters that define the reporting period and choose the GB_WHT_CIS300 (Great Britain Withholding Tax) report in the search help of the Report Name field (reporting entity: GBGRPENTY).

2. Choose one or more reporting statuses as required.
You can also enter additional filtering options, such as the submission due date, the reporting year, or the country/region.

3. Choose Go.
The app displays a list of the reporting tasks for each reporting period that you can further process.

4. Click the row of the report you want to process and choose New Run.
You can enter further filtering options, such as the company code and posting date.

Choose a run option. You can choose to generate the report run immediately or schedule the runs for a later point in time. For report runs, that may take a long time to process, you can choose to run the reports in the background.

5. Choose Run.

Hints:

1. DRC: The electronic submission with the SAP Document and Reporting Compliance service is optional.

2. Report Accepted: If the report is accepted by the Government, the reporting task will be closed and you will have to run the report in correction phase.

3. Report Rejected: If the report is rejected by the Government, you can regenerate the reporting using the same task and submit it again.

WHT Reporting

e-Reporting / Document and Reporting Compliance (DRC)

The following features are supported in the UK reports by DRC:

e-Reporting

Feature	Withholding Tax Report	EC Sales List	VAT Return	Reverse Charge Sales List	Audit Files (HMRC)	Payment
Manual Adjustment	Yes	Yes	Yes	Yes	Yes	Yes
Data Preview	Yes	Yes	Yes	Yes	Yes	Yes
Electronic Communication with the Government Gateway	Yes	Yes	Yes	Yes	No	No
Correction and Additional Correction Phases	Yes	Yes	No	Yes	No	No
Reporting Activity – Manage Tax Items	No	Yes	Yes	Yes	No	No
Reporting Activity – Post Tax Payable	No	No	Yes	No	No	No
Embedded Analytics	Yes	Yes	Yes	Yes	Yes	Yes

1. Withholding Tax Report

You can use the United Kingdom Withholding Tax report to generate the withholding tax declaration, and submit to the government.

You can use the Run Statutory Reports app to generate the Withholding Tax.

The system generates an XML file that meets the requirements for automatic submission to the government gateway.

Additionally, PDF documents get generated with the details of the tax that has been withheld. You can share the PDF output with the respective business partners.

2. Great Britain - Northern Ireland EC Sales List

The EC Sales List (ECSL) forms the basis of the information shared between the tax authorities of EU Member States.

If you are a VAT-registered entity, you must complete an EC Sales List when goods or services are transferred to an entity which is VAT-registered in another EU Member State. This includes activities such as:

Supplying goods and/or services to a VAT-registered entity in another EU Member State.
Providing a credit note to a VAT-registered entity in another EU Member State.
Arranging triangular deals between VAT-registered entities in different EU Member States.

The document for the EC Sales List must include the following information:

VAT registration number of business partner maintained in the business partner master data.
VAT registration number of business partner in FI document. This data is filled in automatically if you record the reporting country in the supplier or customer invoice and the tax country in the sales invoice.
Tax code with respective EU code.

3. VAT Return

The Great Britain VAT Return report enables you to generate your VAT Return and fulfill the statutory reporting requirements in the United Kingdom. You generate this report in the Run Statutory Reports app.

The VAT Return report (report category GB_VAT_DCL) generates the VAT Return in a JSON file format.

4. Reverse Charge Sales List

You can use the Run Statutory Reports app to generate the Reverse Charge Sales List.

5. Audit Files (HMRC)

The HMRC Audit Files report enables you to generate audit files for Sales and Distribution, Material Management, and Financial and fulfill any requests from the tax authorities for providing data for off-site data analysis to ensure correct VAT accounting in the United Kingdom. You generate this report in the Run Statutory Reports app.

The HMRC Audit Files report (report category GB_HMRC) generates the audit files in TXT format.

You can generate one audit file or the three audit files based on the auditor's request.

6. Payment Practices and Performance

The Great Britain Payment Practices and Performance report enables you to generate the required payment data and fulfill the requirements in the United Kingdom. You generate this report in the Run Statutory Reports app.

The Great Britain Payment Practices and Performance report (report category GB_PPPR) generates the payment data in ALV format. The report contains information about the proportion of invoices paid beyond agreed terms, average time taken to pay invoices from the date of issue, proportion of invoices paid within certain periods, amount of interest that has been paid, and amount of interest liable to be paid.

Parameters Specific to Report Entity

The following parameters are used by the "GBGRPENTY" reporting entity, and are valid for all statutory reports for the United Kingdom.

Parameter | Description | Sample Value Example

GB_ADDRESS | Address of the taxpayer | Clockhouse Place, Bedford Road, Feltham, Middlesex TW14 8H
GB_COMPANY_NAME | Company name of the taxpayer | Company Name
GB_SENDERID | Sender ID | VATDEC045a07
GB_URI_VENDORID | The URI of the owner of the current process, which is used by the Gateway to uniquely identify the application from which the message originates | 971
GB_VAT_VATREGNO | VAT registration number of the taxpayer | 999900007

References: SAP (www.sap.com); HM Revenue & Customs (www.gov.uk)