HMRC’s deadline for Making Tax Digital (MTD) for VAT may have slipped back to October 2019 for certain businesses, but its aim to be the “most digitally advanced tax administration in the world” has not changed. This move is in-line with the global trend towards a more digital relationship between tax authorities and businesses, as well as increased regulatory guidance from the Organisation for Economic Co-operation and Development (OECD) for greater transparency in tax data.
In fact, ‘complex’ businesses, as HMRC refers to them, aren’t just facing a change in tax regulations in the UK, but most likely across multiple territories.
As governments around the globe maximise technological advances for efficient collection and verification of transaction information then companies’ standard operating procedures will continue to be disrupted. These tax authorities are investing heavily in utilising technology and building teams in new ways, and even hiring data scientists to work with information from taxpayers. Businesses could be fooled into thinking that they can survive in the short term by taking a ‘sticking plaster’ approach to remaining compliant and meeting the ever-changing legislation but it’s a false economy.
The dated approach that many indirect tax departments take by using manual processes, can be extremely time-consuming and permits margin for human-error. There may also be multiple Enterprise Resource Planning (ERPs) and disconnected systems in place. Then there’s the quality of the data itself — bad or incomplete data results in bad reporting. And any inability to anticipate and produce timely responses to changes can leave businesses vulnerable to risk and exposure.
Legacy processes and procedures adopted by indirect tax teams over the years will be insufficient for meeting the pressures that are ever increasing from all jurisdiction. Companies need to encourage tax departments to embrace the digital transformation of tax processes and look at these changes as an opportunity for both the team and the business itself.
An obvious first step is for businesses to understand to what extent they are already compliant, focusing on where relevant data is collated, what kind of data is available via digital means and understanding the processes used for producing indirect Tax returns.
Strategic indirect tax teams will be able transform processes by creating a consistent approach to compliance, removing the risk associated with varied methods across business units and locations. They will have the ability to adopt accurate and dependable tax positions at the time of purchase/sale that will ease the audit process.
By adopting the right technology and software to support the business they will also have the foresight and flexibility to restructure the indirect tax team. Being able to forecast and adapt to new legislation with ease will enable the organisation to future proof itself and reduce its reliance on consultants and IT. Furthermore, the ability to support the business, during the creation of new operations, M&A activity, or sizable capital purchases, and so forth means the company can ensure it meets the right tax considerations in a timely manner.
The digitalisation of tax is an opportunity for indirect tax teams to adopt a proactive spirit and partner with the broader finance department. Together they can review what technologies other tax teams and larger finance teams are deploying as well as identify where technology is lacking. Working together will ensure the business benefits from smarter investments in technology that allows its experienced tax teams to be strategic rather than bogged down with manual tasks.
The ongoing introduction of global tax legislative initiatives show that the deployment of forward-thinking technology is no longer optional but absolutely crucial to succeed. While some tax professionals may be hesitant to use technology such as automation in case it replaces them, fear not! The technology will always need skilled and knowledgeable professionals to maintain and adapt as new regulations occur. Automation should be welcomed as a release from time- draining manual tasks and providing the opportunity for more strategic and profitable activities that will benefit the business.
The timeline in which tax departments need to respond to these varied tax pressures can be unpredictable, as MTD has demonstrated. It’s therefore essential that businesses shift to a strategic mindset regarding the technology, people, and processes within its four walls. Initially it may be difficult to move away from survival mode but by being proactive and developing processes that the tax department and the company can adapt and thrive, no matter what changes come their way.