Hi @SB84 , you may need to change your query. From this article: https://community.dynamics.com/crm/b/crmchap/posts/principal-could-not-be-found-or-this-principal-type-is-not-supported-error-azure-sql-server
you may have to add the tenant name for example:
CREATE USER [john.smith_domain.co.uk#EXT#@test.onmicrosoft.com] FROM EXTERNAL PROVIDER
Please let me know if this works or if you have any questions.
If this answer helped you please mark it as "Verified" so other users may reference it.
Thank you,
James