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July 2024

Jul 29
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indirect tax trends and practices

Indirect Tax – Global Trends and Best Practices for Businesses

By Customs Duty news|Featured|Uncategorized|VAT news, VAT news

The global indirect tax landscape continues to throw fairly major challenges at indirect tax teams dealing with UK and/or global VAT issues.  Some of the key hot topics at the moment include the following:

  • E-invoicing
  • Harnessing AI
  • Automation of Compliance Processes
  • Keeping abreast of global VAT rule changes (particularly if you operate in the B2C environment)
  • Tax Authorities using data lead approaches to audits

These are all fairly sizeable issues and it isn’t always obvious where to start on these.  This article will give an overview of some key steps you can take to ensure the indirect tax team is in a good position to progress initiatives in these areas by exploring what the above mean on a day-to-day basis for indirect tax teams.

 

Indirect Tax:  Global Trends and Best Practices 

Trend: E-Invoicing

E invoicing has been on the agenda for some time now and is the process by which VAT invoices are transmitted to the customers in a secure environment, sometimes passing via Tax Authority software to be authenticated/approved.  Some countries have implemented mandatory rules for this process and unfortunately these vary by country.  All however are underpinned by a common purpose, being one of managing VAT fraud.  The focus is on ensuring the transmission of the invoice data is secure so that data elements (eg the VAT value) cannot be changed, thereby ensuring that the output tax declared by the supplier equates to the input tax credit claimed by the purchaser.  The inclusion of a pit stop with the tax authorities for invoice authentication is aimed at reducing the risk of fake invoices being created to claim input VAT credits.

Best Practice: How Can you Prepare?

In terms of what indirect tax teams can usefully do now to prepare for these changes, you can ensure that your customer and supplier master data processes are robust and that you have good quality data captured for VAT purposes.   Data used on VAT invoices is typically very similar worldwide and therefore if you have no gaps in your current data, eg customer VAT registration numbers, the transition to e-invoicing for a particular country will be easier, and should be one involving IT and systems rather than something that requires a huge amount of input (other than oversight) from the tax team.

 

Trend: Harnessing AI

AI tools can be extremely useful for busy indirect tax teams needing to create content such as process documents, training notes and guidance for the tax team and the wider business.  It isn’t uncommon to find it difficult to create these as it can be a time consuming task, often put off due to competing priorities.  This is where AI comes in – it can help you get things moving by doing the ‘heavy- lifting’ in relation to the initial framework for such documents.  The output will be plain vanilla in nature but you can then layer on your business’ commercial fact pattern to ensure it is accurate and relevant.  We wouldn’t advise using AI for VAT advice as such and you should tread carefully, but AI generated documentation could get you 70% of the way to producing what you need.  The indirect tax team then layers on the complex part of how the various VAT rules interact with each other, giving you something accurate and fit for purpose.

Best Practice: How Can you Prepare?

If you haven’t yet dipped a toe in the deep waters of AI, it is worth gaining confidence in the potential  benefits for the indirect tax team by testing it out – ask ChatGPT or similar to produce a document on an area you are familiar with in terms of technical accuracy and content, and judge the output to see whether it would save the team time using a similar approach for other areas.  You don’t need to sign up for a paid subscription to do this.

 

Trend: Automating the VAT Return Process

Businesses regularly have business improvement projects running that involve the indirect tax team.  This might be in the form of a new ERP system, implementing a tax engine or trying to minimise manual input and process using tools such as Alteryx to do credibility checks and identify exceptions.  These are all very positive projects and are essential if the business has a large volume of transactions.    There can be pressure to stop using excel as a key tool but it is fair to say that it is still heavily used by most indirect tax teams.  Automated processes and excel aren’t mutually exclusive.  The most important point here is that you have good credibility checks built into your compliance process, not just based on the reconciliation of VAT data but on testing whether the underlying transactions are treated correctly for VAT purposes.

Best Practice: How Can you Prepare?

In terms of what you can usually do now to ensure the team is in the position to benefit from new automation projects, in the first instance the tax codes hold the key to accurate VAT data.   You should take the opportunity to ensure they are working effectively for you and being used appropriately by the business.  If not, consider rolling out further training to improve the quality of tax code use.  In addition to this you should check whether the master data is complete and that the front end processes impacting VAT compliance are accurate.   There is nothing more frustrating for the indirect tax team than knowing poor quality data has been transferred to a new system, meaning the enhanced functionality and automation adds little value, and, in some cases, increases VAT risk.

 

Trend: Keeping abreast with technical VAT Changes

This has always been a challenge for busy indirect tax teams as there is so much information available in terms of changes and updates.   This is particularly important however if you operate in the B2C sector as there is a global trend from tax authorities worldwide to act quickly to implement legislation to ensure overseas suppliers of goods or services to individuals in their country account for local VAT.  There are sometimes de minimis limits for overseas suppliers but not always if this would give them an unfair advantage over domestic suppliers.  Generally you can’t reasonably rely on advisors to update you on all relevant developments unless they have a retainer arrangement with you to do so.

Best Practice: How Can you Prepare?

In terms of what you should do now, we would recommend you identify a single source of comprehensive VAT and customs duty updates and commit to reading this each week, making  sure all team members are aware of any relevant developments.  Trying to read more than 1 typically leads to none being read.

 

Trend: Tax Authorities – Smarter Auditing

There is a move by tax authorities to use data they have collected from a supplier to carry out audits on their customer and vice versa.  This includes data they have from e-invoicing systems, automated filing solutions such as Making Tax Digital in the UK, and EC sales lists.  Particularly in the EU, the tax authorities seek assistance from other tax authorities cross border in raising queries.  The goal here is to deal with such queries promptly and to be able to shut them down so that a wider audit does not ensue.

Best Practice: How Can you Prepare?

In terms of what you could usefully be doing now, (this applies to VAT audits in your home jurisdiction too) – make sure you are confident in how your VAT return data is arrived at – the full end to end process, from the creation of supplier and customer master data, the tax determination process for sales invoices, purchase invoice coding, to the preparation of VAT return reports.  This should enable you to quickly respond to tax authority queries and provide relevant evidence requested.

 

Summing up Indirect Tax Trends and Best Practices 

In conclusion, the evolving landscape of global indirect taxes presents several challenges and opportunities for tax teams, particularly in managing VAT compliance. Key trends such as e-invoicing, AI integration, automation of VAT processes, keeping up with technical VAT changes, and adapting to smarter auditing techniques by tax authorities require proactive strategies. By focusing on robust data management, leveraging technology, staying informed on regulatory changes, and understanding end-to-end VAT processes, tax teams can better navigate these complexities. Effective preparation and adaptation are crucial to ensuring compliance, reducing risks, and optimizing the efficiency of indirect tax operations.

 

Specialist Indirect Tax Advice

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global VAT and customs duty advice and VAT compliance services.  To discuss how we can help contact us today.

Jul 04
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tax consultants leveraging specialists

Tax Consultants: Leveraging VAT Specialists

By Customs Duty news|Featured|Uncategorized|VAT news, Customs Duty news|VAT news, Uncategorized|VAT news, VAT news

Regardless of whether you do or don’t have a VAT specialist in your tax or finance team or whether you have a junior VAT manager who is perhaps largely VAT compliance focused, there will likely be times when you need more expertise.  This might be because the existing team is too busy or they do not have enough VAT specialist experience to deal with the relevant project.

This article provides detail on when it might be useful to bring in a tax consultant, either to help with a specific ad hoc piece of advice or to do some project work for a specific period of time.  Common scenarios where we see this need arising are as follows:

  • you are short of VAT / tax specialist staff and/or your VAT specialists are doing their day job and firefighting and have no time to focus on ad hoc strategic/proactive projects;
  • you are implementing a new ERP system;
  • you are dealing with mandatory requirements such as annual Senior Accounting Officer (SAO) review and reporting and the Disclosure of Uncertain Tax Treatments;
  • you have had notification that the tax authorities will be carrying out a VAT audit;
  • the business has a new business activity to be launched or is making changes to the existing supply chain;
  • the business is being restructured, for example acquiring new companies that need to be integrated into your existing VAT processes;
  • you have received an assessment from the tax authorities or have identified an error that needs to be disclosed to them

 

When is the right time to call in a Tax Consultant?

As early as possible, particularly where new business activities and ERP systems are involved.

This is because it’s essential any VAT red flags are identified early in the process for such new business initiatives so that there is an opportunity to influence the proposed course of action and to make any adjustments in order to minimise the impact of VAT, all other commercial factors being equal.

With ERP implementations you do not want to be in a position where the ‘out-of-the-box’ version is implemented – top of your list should be that you are able to influence which tax codes are implemented in the system and how staff are trained in the use of these.  These are the critical tools used to tag all of your sales and purchase transactions.  If this area is not dealt with correctly then the compliance burden will increase significantly for the team.  You should also ensure that any new ERP system in tested with input from a tax consultant prior to go live so that the specific VAT risks attached to different tax codes can be tested.

Doing a pre-audit before a tax authority VAT audit is essential as it will give you a heads up on any potential issues beforehand.  These can then be flagged to the tax authorities if required and this is an area where a VAT tax consultant can usefully assist.

Errors and Assessments

Where VAT errors have been made and you need to file an Error Correction Notice (ECN) to disclose this to the tax authorities in order to reclaim additional VAT and/or to pay additional amounts of VAT to the tax authorities, it is essential that the correct formalities are followed so as to ensure the correct amount of VAT is disclosed.  This includes having knowledge of the various time limits depending on the error in addition to the format and level of detail to be provided.  In addition, you may need help determining whether an error can be adjusted on your next VAT return rather than by means of the ECN process.

Sole VAT / Tax Resource

If the VAT specialist in your team is relatively junior they can feel fairly isolated from a technical perspective, and even the Head of Indirect Tax can similarly feel the need for a sounding board or second opinion on a particular course of action.  It is important to be able to draw upon others to sense check the view you are taking, particularly with a complex area.

Resource Drain

For staff who are within the finance or tax team and are not VAT / tax specialists it can be incredibly time consuming for them to research the VAT treatment of a particular transaction and then to only be 90% certain of the answer following this period of time.  Having access to specialist VAT  resource can reduce the time spent significantly freeing up their time for other team tasks, and you also better manage VAT risks by having the correct technical analysis.

 

How do you choose a Tax Consultant?

Choosing the right consultant ideally means working with someone who is knowledgeable about your sector and is responsive and accessible.  In addition it is important that you have a degree of certainty over the cost involved in receiving the advice as this can be a source of tension for both the advisor and the client dash – it is preferable to have a clear idea of what the fees will be and to have agreed these along with the scope in an email or similar before commencing the work

For bigger projects it may be worthwhile considering whether an Interim Resource solution is preferable, on either apart time or full time basis for the duration of the project.  You will find you have various options to explore for this.  For example you could approach one of the Big 4 or Top 10 accountancy firms that have VAT specialist / tax consultant teams and may be able to provide a member of staff albeit usually a junior one.  This can be an expensive option however.

An alternative would be to reach into the interim market via a recruitment agency where you will be able to hire a sole trader/contractor to work with you.  This would likely be a more cost effective option but on the downside it can be difficult to determine the quality and experience levels beforehand other than through the interview and it is likely they will not be working under professional indemnity insurance – in this case you are essentially just hiring staff who you are responsible for guiding and ensuring they don’t make mistakes.

The VAT Consultancy approach in this area is as follows:

  • our staff are all Big 4 or Top 10 background
  • they have been advising on VAT for more than 20 years each (some 30 years +) so are able to quickly get to the heart of an issue and achieve a lot in a short period of time, working autonomously and dealing with senior stakeholders if required
  • they are used to working in tax or finance teams in such roles and understand the pressures and competing priorities of your team
  • you are covered under our PI insurance
  • our fees are more similar to those for interim solutions

 

Recent Advice Requiring a Tax Consultant

The following are a snapshot of the type of work we have done recently for clients where the involvement of a tax consultant led to a better VAT outcome for the client or enabled them to free up time for the finance and tax team to focus on other issues:

  • 12 hours per week tax consulting resource whilst a permanent replacement was hired – ensured key projects could continue. We also participated in the interview process for the new hire to ensure their VAT technical knowledge was where it needed to be;
  • Monthly retainer arrangement with major loyalty brand, enabling their legal team to seek VAT specialist input to commercial contracts prior to signature;
  • Advice to an accountancy firm in relation to a commercial property transaction to be undertaken by one of their clients – our intervention prevented a 6 figure SDLT liability from arising;
  • 10 hours per week VAT / tax consulting resource for an investment company recently listed and needing to embed robust VAT risk management processes (including VAT return completion processes) into the finance team. Bespoke VAT training also provided to ensure the team understood the reason behind the new processes;
  • Advice to an online travel agent to ensure VAT does not form a cost on their transactions and that they do not have overseas VAT registration obligations;
  • Support to a client at VAT Tribunal to challenge HMRC’s claim that their products were standard rated rather than zero rated

 

The VAT Consultancy is highly experienced and provides relevant and practical advice to help you deal with the VAT and customs duty issues your organisation faces.  We provide global tax and customs duty advice and VAT compliance services.  To discuss how we can help contact us today.