The pandemic has had a huge impact and many CFOs don’t anticipate recovery until Q3 2021 at the earliest, according to Deloitte’s CFO Survey (although economists now think the economy could rally as early as Q2 thanks to the vaccine rollout). Regardless of when the economy bounces back, Chief Financial Officers (CFOs) will need to adapt to a raft of changes in the marketplace and seismic shifts in the way we work.
In addition to meeting the planned regulatory compliance demands such as the digital links mandate under MTD for VAT, CFOs should also expect tax rises. Reports indicate a possible increase in Corporation Tax in the March budget, for instance, to help address the national deficit, tipped to exceed £400bn in 2020-21. Every percentage point increase could generate £3.4bn in additional revenue, according to the FT.
The reality is that the losses experienced by companies in 2020 will generate tax rebates for the previous year, leading to treasury funds being depleted in 2021. CFOs will be placed under real pressure because they’ll need to find the funds to pay their corporation tax bill now, despite their losses, before they can reclaim a year later, although there are payment plans available that can help companies balance the books.
On a positive note, the pandemic has spurred technological innovation and is likely to accelerate the trend to digitalise tax functions. A McKinsey survey reported leaps in the uptake of technology to improve processes so that changes that would have taken years to achieve are enacted within just a few weeks. It’s a trend that has also seen software compliance vendors boost their R&D, further boosting innovation as many seek to build-out their tax compliance offerings with additional features.
Demand for technology is also being driven in no small part by remote working. McKinsey estimates instances of remote working are now 43 times higher than before the initial lockdown. Forced to work from home, employees require access to data and collaboration tools but this hasn’t stopped some working practices that are prone to error ie use of spreadsheets and manual processes, from persisting.
The challenge for the CFO has therefore become how to create a path from the old to the new, by providing their employees with the right tools, improving access and streamlining processes to reduce manual workloads with software automation technologies. The remote working we’ve all grown used to is also set to continue, with the Deloitte Survey predicting home working will increase fivefold by 2025.
Where to invest
There are still a great many ‘unknowns’ about 2021 but one of the few certainties is that investing in technology will help create operational efficiency and competitive advantage, leading to accelerated growth. Financial forecasting, stress testing and analysis have moved up the corporate agenda so that many CFOs are now building out their digital strategy by investing in long-term technology solutions which had previously been put on the back burner.
The pandemic has also an increased desire for certainty and a real-time understanding of how the business is performing and its trajectory. According to a recent McKinsey survey, 43% of CFOs said they “need to streamline their overall budgeting processes to react more quickly and efficiently” so require in-depth financial reporting. This is seeing many invest in data analytics solutions in order to improve their control of finances and build business resilience.
Tapping into tax data
When it comes to tax data, the information of value has tended to be obscured until after the Return has been generated. This forces the company to take a retroactive rather than a proactive stance. But applying data analytics can make this tax data accessible in real-time over dashboards that allow instant assessments of performance. Comparisons can then be made and projections created for future liabilities, an important consideration given the same McKinsey survey found 65% expect to use more rolling forecasts going forward.
Digitalising processes also confers other advantages, improving accuracy so that less time is spent on review, which tends to be the most time-consuming and non-productive aspect of the process. This can reduce the risk of investigation and audit by HMRC. A convoluted and stressful process, this requires the business to painstakingly trawl through calculations and such investigations can also have a financial impact, delaying rebates/VAT repayments.
In the event of an audit, CFOs will need to have information at their fingertips. Thankfully, digitalising the process creates a digital audit trail which can be used to swiftly prove workings and help validate the Return.
A changing role
Traditionally the CFO has always had to play a strategic role, overseeing the financial performance and helping to determine the future direction of the company, but the crisis has now elevated this further. Their vision will be essential in helping businesses conserve funds and invest appropriately but they’ll also need to play a more active role in the deployment of technology.
The CFO will need to ensure that any digital transformation is blended across the organisation as a whole. Fragmented systems and data silos could lead to ill-informed decisions so it’s important to have systems in place that can talk to one another. Processes will also need to facilitate data sharing so that it can be leveraged and communicated across departments even if those employees are working remotely.
It’s clear that technology will be essential in helping businesses emerge from the pandemic in a position of strength . With a better view of financial performance, improved operational efficiency and an empowered workforce, the CFO can budget accordingly and ensure the business is better positioned to withstand any future economic shocks.
For a more in-depth view of pressures facing CFO’s, check out our resource here. Or, to find out how we can help you automate your tax processes and use data analytics to drive your decision making, contact us today.