Xeinadin Group launches new VAT risk assessment tool

Xeinadin Group has launched a unique VAT risk assessment tool to help businesses manage increasing VAT risks and reduce exposure to financial penalties.

It warned that businesses are under increased risk of financial penalties for VAT errors driven by the complexity of the regime and HMRC’s return to a compliance focus, according to professional services group

Financial penalties over VAT inaccuracies are commonplace. HMRC issued over 66,000 penalties for inaccuracies on VAT in the tax year 2021-22, a 66% increase on the previous year and a 63% increase on 2019-201. The collective value of penalties issued was over £159m, a 26% increase on the previous year and a 32% rise on 2019-20.

Following a report released in January by MPs which highlighted that £42bn of taxes had not been collected by HMRC last year, HMRC has said it is hiring 2,500 more people to its compliance teams to investigate non-payment, and that it is prioritising the collection of unpaid taxes. 

Xeinadin’s new tool, which has been successfully piloted with some of its clients, assesses companies’ attitude to VAT risk, the thought they put into it and processes they have adopted to ensure compliance in their organisation. It is designed to provide VAT registered organisations with robust supporting evidence to demonstrate to HMRC that they have exercised reasonable care.

As penalties are behaviour-based, they can be mitigated if the VAT registered entity can demonstrate that they have taken reasonable care to get the right tax declared at the right time. This includes putting processes in place for training their staff or ensuring sound checking steps exist in the production of VAT data for the Return submission.

The tool gives a risk rating for each of the company’s responses, from which a total risk score is given, together with tailored recommendations from Xeinadin’s VAT experts. A plan can be produced advising if a company needs to take actions such as recruiting expertise or adopting new systems or processes, outlining immediate and longer-term actions they need to take.

Liz Maher, indirect tax director, Xeinadin Group, said: “VAT processes and controls are not covered by the requirements of an annual audit, therefore it is often a risk area that is overlooked. This tool is designed to provide a value-added service that can significantly mitigate that risk.

“It’s an essential area of good governance. There are many organisations who don’t have expertise in this area, and this is a neat way of assessing their level of risk. We’re also considering alternative applications for it, such as the potential for using the tool as part of the due diligence process on acquisition targets. As a potentially serious area of risk, checking a company’s attitude to VAT management is an exercise very much worth doing.”