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VAT Compliance & Reporting-What Should Be Your Business’s Strategy in 2019 ?
July 15,2019 / Haroon Juma / Accounting / VAT / Software Solutions
Obligations On Your Business
Following a year of operating your company’s VAT obligations, this may be a good time to assess whether you are managing to the adaptability and cost effectiveness you aimed for. In this whitepaper, we provide useful frameworks to help you assess and plan to optimize your operating model.
Key Questions to Ask
Assessing and implementing changes to improve VAT compliance may seem unnecessary especially if you have not incurred any penalties. In reality your business could be still open to potential risks and avoidable costs which may come to light under an FTA audit.
VAT Compliance risks will typically increase subject to company size, nature of business and transactional volumes. For example, large enterprise Tax Groups are more complex to manage and have greater risks and costs to comply. However, they can affect businesses of any size and some review is advised especially as the FTA has issued several clarification notices since January 1st, 2018.
Best practice recommends periodic reviews to identify compliance risks. Ideally you should be considering the following questions:
- Do you have the trained resources to manage and minimize risks?
- Did you conduct a business wide VAT assessment and implement changes?
- Do you have the processes and governance (if required) to deal with issues and adapt to new requirements?
- Is your IT set up correctly to manage your end to end VAT compliance & reporting?
- Is your reporting process efficient?
- Is your system fully auditable to provide information and data in case of audit and generate an FTA Audit File?
Once you have assessed your current capability, the next decision is to evaluate the required impacts to attain your desired target. The longer changes take to implement, the greater the disruption and scope of issues to manage.
Hence, speed is an important factor setting your targeted objectives and this is dependent on the nature of your business. A services business with a small volume of transactions will imply smaller impacts versus a multi entity tax group, without a central tax function and separate IT applications.
These illustrative options present a broad summary of strategies available.
If your business lacks any platform, trained internal expertise or processes and is seeking a cost-effective solution, outsourcing presents the most viable and simplest option. In doing so, care should be taken in selecting the correct partner as you are fully reliant on their determination on your returns and obligations.
Ensure you have the ability to understanding their deliverables and they are available to support you over the long term. You may require their help in case of FTA queries or audits.
Ideally a platform inclusive service provider delivers the greatest transparency and longer-term solution to manage your VAT compliance cost effectively. The additional benefit being you can implement sustainable financial management and insource at a later stage.
IT plays a pivotal role to minimize costs and risks through implementing an effective automated system that minimize human errors and select the correct treatment at time of transaction.
You may be an established business with legacy systems and historical financial reporting in place. Updating or changing your accounting application could be complex and budget intensive to meet the full compliance requirements. This transformation may also be difficult to justify purely for VAT requirements and fail your business case.
However, there are a variety of solutions that will co-exist with your existing application. They can present viable options and provide the flexibility and speed your finance team requires to manage their responsibilities. Some providers also provide the VAT expertise to validate your returns for greater assurance.
IT support will be essential for this option to ensure data is available from your core system reliably and on time.
If you identify gaps in your internal human capital and processes, securing external support to provide additional best practice expertise and training can allow you better operate your processes and platform.
Alternatively, you may choose to retain a partner to prepare your returns. If so, care must be taken to ensure all your transactions are assessed and not sample based. If all your transactions are not fully assessed, you may file incorrect returns and miss areas of improvement.
A transactional validation tool is one of the options to also include with this strategy. These tools verify postings to a reference set of transactional tax codes and identify posting errors and rating to reduce miscalculations and reporting errors.
Positive answers to all the questions assessing your capability places you in a strong position. Maintaining your performance should be your goal and this also usually means an on-going review of legislation changes and market best practices is taken to stay on top.
For finances teams that operate a complete in-house model, it can be a time-consuming process to review all transactions. It is likely transactional mis-coding for tax treatment occur in any business which need to be identified and corrected.
Therefore, use of a transactional validation tool can reduce manual checking, improve accuracy and speed your VAT preparation cycle.
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