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Non deductible tax project cost is not a part of accrued revenue?

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Posted on by TorbenH

Hi,

The 9.50 amount transaction is a non deductible tax part of an expense transaction, that fine. But why is that transaction not a part of accrued revenue - see attached document. Is there a way to set up the project module to do so? I do not find any on e.g. the project group.

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Dynamics 365 Project Operations

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ANInnoSolutions 287 on at

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Hi TorbenH,

can you be more specific on the requirement and provide a full screenshot?

Basically, and on the description above, find the following answer:

The issue "Non deductible tax project cost is not a part of accrued revenue" in Dynamics 365 Finance and Operations (D365 FO) typically arises from how non-deductible VAT (sales tax) is treated in project accounting, especially in time and material or expense-based projects.

In D365 FO,

- Non-deductible tax is the portion of VAT that cannot be reclaimed from the tax authority due to local tax laws
- This portion is booked as an expense and becomes part of the project cost
- However, accrued revenue (revenue recognized before invoicing) may not automatically include this non-deductible tax unless configured correctly

This can happen because of e.g.,

- Non-deductible tax is treated as a cost, but accrued revenue logic may only consider net costs (excluding tax)
- Project group settings or revenue recognition rules may not be configured to include tax in revenue accrual
- Sales price setup for expenses may not dynamically adjust to include the tax portion

Resolutions:

1) Verify Sales Tax Code Setup
- Go to Tax > Indirect taxes > Sales tax > Sales tax codes
- Open the relevant tax code and check the Non-deductible percentage
- Ensure it's correctly set (e.g., 100% for fully non-deductible tax)

2) Check Project Group Settings
- Navigate to Project management and accounting > Setup > Posting > Project groups
- Review the accrued revenue and cost recognition settings
- Ensure the cost account includes the non-deductible tax portion

3) Review Sales Price Setup for Expenses
- Go to Project management and accounting > Setup > Prices > Sales price – [expense]
- Ensure the sales price includes tax if required
- If using transfer pricing, verify that the transfer price includes the tax portion

Rg,

Alexander

*Due to the complex and different possibilities of deploying Dynamics 365 I highly recommend not to setup the application without some expert/partner or support. (For more information contact me under anassl@inno-solutions.info or visit www.inno-solutions.de)

*The Information comes directly from the manufacturer or provider and are validated (not guaranteed) up to date of creation of the posting.

References:

Microsoft Licensing Guide

Microsoft Doc`s/Learn

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Raj Borad 1,417 on at

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Hi @TorbenH,

I think the 9.50 transaction shown under account 43116 is a non-deductible tax cost, which is as an expense and not revenue-generating. That’s why it doesn't appear under "accrued revenue – sales value" (40504).

FO separates tax costs from revenue accruals for clarity and compliance, ensuring only the actual billable portion is posted to accrued revenue.
Therefore, 38.00 is recorded as revenue, while 9.50 is directly posted as cost.

Thank you,

Raj D Borad

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