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One of the things we often hear is that tax and finance teams struggle to build the investment case for transforming the tax function. It’s traditionally been perceived as necessary sunk cost rather than an element of the business that would benefit from digitisation. Tax teams need to point to tangible benefits in order to secure investment.

It was this that got us thinking that the assessments we perform prior to implementing AlphaVAT, our VAT SaaS platform for enterprises, could provide valuable insights into how well VAT is being performed today.

We’ve now conducted over 200 implementations during which we benchmarked the data to capture the effectiveness of the original VAT process to create a ‘before’ and ‘after’ picture for customers. What we found startling was that, despite the Making Tax Digital mandate, many businesses were struggling to get a grip on their VAT data leading to an inaccurate and inefficient process.

Background

To start with, it’s worth pointing out that the benchmark data we collected relates to those businesses with complex VAT environments. By this we mean those businesses with convoluted VAT processes that involve multiple steps, source systems and so on. Typically this complexity included Partial Exemption, in particular special method, VAT Groups, or treatments requiring the application of mixed VAT rates. Such organisations are either large businesses which have been allocated a CCM (Customer Compliance Manager) within HMRC’s Large Business Directorate, or mid-sized businesses, with turnover above £10 million, more than 20 employees or with more than 10 partners (the criteria used by HMRC).

Excel was the primary VAT reporting tool for most of these organisations and had been for many years, however many customers had seen their spreadsheet-based processes start to struggle due to a number of factors. ERP generated data had to be manually fed into spreadsheets and, when a change was made, it was then problematic to be able to make that change in the source data and in other spreadsheets too.

Teams also lacked confidence in their VAT process, perhaps because with heavy workloads, regularly working down to the wire, and using inherited spreadsheets, they were conscious of the increased risk of inaccuracies in their returns. This led to a general distrust in the end result, elongating both ends of the process, when data is validated and the Return is checked.

Customers with complex VAT processes often had the challenge that the Returns could not be calculated in their ERP and so had to be performed manually within spreadsheets, yet these processes were the most time-consuming and error producing parts of the process. Manual processes also monopolised tax team resource to such an extent that there was little time left to dedicate to review let alone value-added activity, such as tax analysis or tax planning.

Nine standout learnings

Unsurprisingly, every VAT process is different but we found many of the same issues were coming up time and again. This was largely due to integration issues with source data systems (ie there wasn’t any), an over reliance on spreadsheets and high manual workloads. Some of the most startling findings from the assessments were:

  1. 57% of businesses lacked confidence in submission accuracy as they were unable to verify the integrity of their results
  2. 78% of VAT reporting processes contained spreadsheet errors of which half had a meaningful impact on the accuracy of their submission
  3. Problems identifying incorrect VAT payments and recoverable VAT
  4. Over 50 days a year were commonly dedicated to the VAT process, suggesting manual workloads would naturally increase further given the future trajectory of tax regulations
  5. Over 80% of the time spent was on preparing data and ensuring spreadsheet integrity. Over a week per period was commonly being wasted just checking their spreadsheets
  6. Teams were working to the wire in an attempt to meet filing deadlines
  7. This resulted in limited time for review, resulting in more errors
  8. Logjams due to clashes between rolling forecasts and month end reporting were delaying delivery of important internal business reporting
  9. An inability to replicate the process during successive periods was resulting in more work and increased risk during audit

Technology improving processes

Armed with this information, we’ve been able to help our customers to identify how they could improve their VAT process and use automation technology to help create more accuracy, efficiency and control at every step of the process, from beginning to end in a number of areas.

One - Data extraction: Cleansing and standardising data from multiple ERP sources to ensure the dataset being used is reliable, easing the review burden. As AlphaVAT is data agnostic, there’s no need to reformat the ERP data, saving time and simplifying the process.

Two - Calculations and checks: In-built tax logic automates the calculation of all types of VAT (including partial exemption, group consolidation, FX and reverse charges) and is regularly updated to ensure the business remains compliant. Pre-configured and custom data checks allow finance teams to automate this element of the process while ensuring they run the correct checks for their organisation

Three - Review: Transactions are held in a single repository and because each step of the process is digitally linked, this creates an end-to-end audit trail, so the team can drill back all the way to the transaction level. Reconciliation reports, detailing all the changes, made make it easier and faster to carry out review and reconcile any changes back to the ERP source data.

Four - Adjustments: Changes are tracked centrally, logged against a user, time stamped and fed back into the Return. Any adjustments that cannot be performed in the ERP can be carried out in AlphaVAT.

Five - Submission: The business can confidently submit the Return and, armed with a track record of every stage, can readily answer any queries and evidence its compliance to HMRC.

Six - Post-Return analysis: Tax data analytics can be used to compare results, identify trends and potential areas for improvement as well as to home in on specific items, enabling the team to focus on high-risk areas.

What were the results after deployment?

Benchmarking is invaluable for capturing where a company is at pre- and post-deployment. We’ve seen the ‘before’ statistics but what about what happened after they’d moved to an automated VAT process? What were the results?

Firstly, compliance workloads plummeted by more than 70% because mundane time hungry tasks such as data collection and validation were automated. This had a knock-on effect, making tax teams were more confident in the data, so that review times were also slashed, allowing filing to take place between three to five days earlier, on average, reducing the likelihood of any conflict with rolling forecasts or month end reporting.

Moving to a digital tax platform reduced spreadsheet use, eradicating 100% of the errors associated with these, and the digital audit trail meant customers could prove their workings to HMRC without having to dedicate further time to gathering the evidence.

There were many success stories too. One large financial client saved three months’ work with their PESM, through automating the previously manual process of mapping e.g. funds with cost centres and sectors. Another increased recoverable tax by £800,000 per annum. Even simple rounding errors could be significant, for one client it amounted to unclaimed VAT of £3k per quarter. This proves that VAT really can contribute to the bottom-line.

Your process

We’ve shared these customer pain points and customer wins in the hope that they help furnish tax and finance teams with the facts they need to build an investment case for further investment in the VAT process and to demonstrate the ease of deployment (the average client effort to deploy AlphaVAT was just one to two days).

More UK businesses use AlphaVAT than any other enterprise automation platform for VAT. If you’d like us to conduct an appraisal of your VAT process to help you make an even more compelling case for digitisation, please contact us at enquiries@taxsystems.com or on 01784 777 700.