First step

Not sure how to justify investment in tax automation? You’re not alone. Many tax teams suspect that digitisation would be beneficial, conferring accuracy and efficiency gains, but it can be difficult to communicate this to the C-Suite. So, what can be done to make the business case for digitisation?

Essentially, the case to transform the tax function is being driven by a combination of factors at both a strategic and company level; the move towards a digital tax system coupled with growing regulatory scrutiny, increased workloads, and demands for the tax team to play a more strategic role in the business. Teams can point to these drivers when making the case for change.

Digital tax system & HMRC scrutiny

HMRC is building a modern tax administration, central to which is a fully digital tax regime. This will see the volume of data processed as well as the depth and speed of HMRC’s analysis increase. Tax teams can expect even more scrutiny and, over time, a move towards closer to real-time assessment.  HMRC has started to increase its audit activity to address the tax gap, with data revealing that compliance investigations increased 36% in the first quarter of 2021.

Increasing workloads & demands to be more strategic

Many tax teams are struggling with compliance workloads. They are dealing with legacy manual processes and a high dependency on spreadsheets. Unfortunately, the workload situation is set to worsen, with plans for quarterly reporting under MTD for corporation tax. Also on the cards is a possible move to combine the annual true-up with statutory accounts.  Put these together with VAT reporting and there’s a high probability that workloads could double. It’s also unlikely that many tax teams will see resourcing increase to match so there is a real risk that current tools and processes simply won’t keep up.

At the same time businesses increasingly expect more from their tax teams. Top performing teams are spending less time in operations and more time in the data, delivering insights to the business. They are achieving this by using technology to reduce the time spent on mundane processing and checking tasks and to focus more on what they were trained to do.

Devising a digitisation plan

These drivers are prompting organisations to look towards devising their own digitisation plans. During our ICAEW webinar ‘A digital future for corporation tax?’, 60% of attendees said they already have an automation plan in place or are looking to develop one. As they see it, they’ve already taken that first step in the form of MTD for VAT so it makes sense to continue to transform the tax function to secure the benefits of greater accuracy, efficiency and control whilst being ready for future regulatory changes.

When asked if they could invest in one piece of software over the next year, 52% said they wanted software to automate the flow of data and tax calculations, while 33% wanted that ‘single pane of glass’ that would allow them to see all tax filings in one place and analyse figures across the board. They had very clear ideas about how technology could assist them to add more value in their day jobs but needed to demonstrate these gains to senior management to justify investment.

Securing spend

We’ve seen from the assessment of 230+ enterprise VAT processes prior to implementing AlphaVAT, that the business benefits case for digitisation can be built around:

1.    Increased accuracy – moving from spreadsheet-based processes to a dedicated VAT compliance platform, with automated checks, can eliminate 100% of spreadsheet errors and ensure you pay the correct tax. We identified, prior to implementation of AlphaVAT, that 78% had Excel errors, half of which had a meaningful impact on submissions.

2.    Reduced risk – Being able to demonstrate to HMRC that there is a specialist VAT platform in place to support reporting can improve your Business Risk Review (BRR+) risk rating. A better rating means you are less likely to attract the attention of HMRC as you require “minimal HMRC intervention”. Another benefit, if you are classed as low risk, is that you’ll only need to conduct a BRR+ assessment every three years as opposed to annually.

3.    Efficiency and reduced workloads – conflicting reporting timeframes and teams working to the wire can result in little time for review or analysis. Automating transactional workloads allows tax teams to move away from low value data-entry and checking, and reduces the compliance workload. For one client, operating with VAT Groups and Partial Exemption, AlphaVAT reduced compliance workloads by over 70%. Digitising the VAT process means there is more time available for reviews and business value activities. On average, AlphaVAT users submit Returns 3 to 5 days earlier each period. What could your team do with that extra time?

4.    Maximised recovery rates – Analytics and reports can help get the story out of the data. Having a better handle on the data can expose areas where more VAT can be recovered, and specialist VAT software makes it easier to adopt more complex Partial Exemption methods with higher recovery rates. This means the potential for more cash in the business. One client increased recoverable VAT by around £800k per annum through a combination of insight, splitting out transactions between taxable and exempt accurately, and removing a reliance on educated guesses.

5.    Proof of compliance – Digitising the tax process means you benefit from a digital audit trail that documents how data has been modified, when and by whom allowing you to track back from the submission to the source data. This makes it far easier to evidence to HMRC that you are accurate, in control and MTD compliant. Confidence in the numbers not only reduces the risk of nasty surprises, but a track record of accuracy can also reduce the frequency of HMRC audits.

Armed with these insights, as well as evidence of the direction of travel of HMRC, tax teams can start to build a strong argument to support the case for digitising tax processes.

If you’d like to find out more about how to take the next step on your path to digitisation, please do contact us for a one-to-one consultation. Or watch our previous A Guide to Digitalising VAT webinar to discover how HMRC’s digital plan could help you to justify your business case.

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