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VAT return from 1 July: M sheets must also be reported without a threshold in Hungary

From 1 July, 2020 according to the VAT Act, the data of all approved incoming supplier invoices for which the company intends to exercise the right to deduct VAT must be provided to NAV on the M-sheet in the domestic recapitulative statement, regardless of the VAT threshold. This will make not only the invoices issued, but also the invoices approved between companies, fully visible to the tax authority.

The  Hungarian Tax Authority (NAV) will lower the threshold for both the M sheets and the online invoice report associated with the invoices issued. From 1 July, 2020 in both cases the previous limit of HUF 100,000 will be eliminated. Let’s look at how the reporting obligation has evolved and what is changing exactly.

Under the new rule, the following invoices must be reported:

  • In the NAV online invoice report, invoices issued to a Hungarian taxable customer, regardless of the VAT amount of the invoices. Thus, invoices that do not include output VAT will also be subject to reporting obligations from 1 July, such as domestic reverse charge invoices and invoices exempt from VAT.
  • On the M-sheet all incoming invoices issued by domestic taxable persons, if the taxpayer exercises the right to deduct tax in connection with the invoices. It is very important to emphasize that according to the new rules, the supplier invoices for which the recipient of the invoice is obliged to pay VAT are also included in the scope of the M-sheet, as he still exercises the right to deduct tax (reverse charge taxation).

From 1 July, the NAV online invoice report will cover all domestic supplies of goods and services (except for intra-Community supplies),independently on whether there was output VAT, or these transactions were subject to VAT or exempt from VAT. This will enable NAV to prepare draft VAT returns for taxable persons. The recapitulative statements extend to all supplier invoices of the company so that NAV can ensure that the companies do exercise the right to deduct VAT based on the invoice issued by another domestic taxable person and certified to NAV.

All incoming invoice on the M-sheet connect to the NAV online invoice reporting data

Special attention must be paid to the invoice serial numbers because the invoice number reported on the M-sheet can only coincide with the online invoice data provided by the invoice issuer to NAV after a perfect match. The tax authority has stated on several occasions that the domestic itemized recapitulative sheets (M-sheets) of the VAT return and the online invoice reports connect in the system, also, are checked automatically.

VAT MSheets automatically?
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What shall be reported on the M-sheets?

According to the Hungarian VAT Act, the recipient of the invoice must prepare a so-called domestic recapitulative statement per partner on the invoices for which he intends to exercise the right to deduct VAT in his tax return. The domestic recapitulative statement shall include:

  • the tax number of the taxable person selling the product, providing the service,
  • the serial number of the invoice,
  • the tax base indicated in the invoice and the amount of output VAT, also
  • the delivery date of the invoice.

M-sheet data report - manually burdensome

Due to the elimination of the threshold related to M-sheets entering into force from July, all supplier invoice data which were supposed to be taken into account in the VAT return must be provided. The domestic recapitulative statement that can be attached to the VAT return must be prepared for each partner (M-datasheet) and the M detail sheets to be linked with it. The M detail sheets may contain up to 36 invoices per page. If you wish to link more invoices to the partner, you need to open a new detail sheet. If a line is accidentally missed or an invoice should be deleted, unfortunately the rest of the lines must be rewritten from that faulty line as there is no other way to fix it.

Considering all these, it can be seen that both data supply and correction are quite burdensome and time-consuming processes. From July, due to the expected increase in time spent it is definitely worth preparing for the automation of M-sheets in order to reduce the possibility of errors .

Prevention and management of VAT audits

Generating an automatic M-sheet – for example by means of using a software – and correcting errors automatically can be a huge help for VAT return professionals. VAT audits can be minimized if:

  • we use an automated solution to prepare recapitulative statements,
  • from the NAV online invoice system we automatically query the data of the invoices issued to us by the suppliers, then compare them with our own VAT analytics;
  • appropriate ERP system settings are used when creating VAT analytics and VAT lists (EC Sales & Purchase Lists)  that are the basis of the VAT return and M-sheet.

In the course of compliance investigations the tax authority also calls on taxpayers to correct themselves e.g. failures on M-sheets. This is a problem in several aspects for professionals who manually file VAT returns having spent a lot of time on processing a large amount of data, preparing the original return, compiling the M-sheets. In case of an error, this large amount of data belonging to the M-sheets must be re-analyzed, the discrepancies to be found and the M-sheets to be corrected – all in line with the burdensome form rules of NAV.  

Questions and problems arising in connection with M-sheets

Let’s see what problems may emerge concerning the recapitulative statements – which ones are worth reviewing before 1 July

1. Are M-sheets manually prepared by the company during the preparation of VAT returns?

This manual process is no longer feasible after 1 July in case of a higher volume of invoices. As all supplier invoices affected by VAT deductions will have to be shown on M-sheets, this could mean much more than now, even hundreds, or thousands of M-sheets. Therefore, it is suggested to be prepared for an increasing workload, an automated solution is necessary, both due to the reduction in manual hours and the possibility of errors.

2. Is the output VAT in the invoice correctly indicated on the M-sheet?

If a taxable person reclaims only part of the output VAT, it can already be problematic how he can indicate the total amount of VAT shown in the invoice in both the VAT analytics and the return. It is incorrect to indicate the amount deducted from the total amount of VAT shown in the invoice. In compliance with the rule, the total amount of VAT and the total tax base must be indicated on the M-sheet. It is similarly problematic when a taxable person prepares the analytics of the M-sheets on the basis of the VAT deducted, while the threshold to be monitored on the basis of the VAT shown in the invoice.

3. Correct tracking of invoice numbers, invoice corrections and invoice references.

The correct invoice reference is also important when filling in the M-sheets, in case of correction, NAV expects the original invoice number and all relevant data to be included. The management of this significantly depends on the ERP system. In case these data cannot be connected automatically, from 1 July, when all credit notes should already be included on the M-sheet, the time spent on manually searching for the affected invoices may increase significantly. This can be helped either by setting up the ERP system properly or by an automated query of the NAV online invoice system.

4. Are employee-related company purchases correctly booked?

In practice, in many cases, the data of numerous invoices are entered on a consolidated basis in the VAT analytics in connection with the employee, referring to the internal accounting ID of the foreign assignment or other settlement submitted by the employee. The data of these invoices will not be entered on the M-sheets.

5. Is the date of delivery correct?

Indicating the delivery date can be problematic, especially in foreign ERP systems. Even though it is common to enter an accounting date, a due date and a VAT date in the ERP for invoices, their content is not reliable. This is typical when the accounting is processed in a foreign shared service center /SSC. In some ERP systems, the date of the approved invoice is often completely missing, although this is required to be able to report invoice corrections on the M-sheet.

Check invoice data? 
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The list could be easily continued, yet it can be highlighted as a summary that the VAT-related data supply is automatically monitored by the NAV and one of the typical reasons for appointing to audit is a discrepancy found between the M-sheets and the NAV online invoice data supply.

The easiest way to avoid all this is if, similarly to NAV, companies prepare the details of the VAT return and data supply as much as possible based on digital resources.

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