Tax : SPREADSHEETS AND AUTOMATION - HOW TO MAKE TAX REPORTING MORE EFFICIENT

Compliance is becoming increasingly complex. Many organisations now have to source data from multiple parties and perform a growing raft of calculations digitally. As a result, tax and finance teams are being bogged down by time intensive manual spreadsheet-based tasks. So how can CFOs use resource more wisely and better capitalise upon the expertise of their team?

Retrieving financial data is troublesome for most businesses but some have to report on numerous networks of partners and suppliers in addition to multiple group entities. This makes collecting and querying data even more difficult as it involves coordinating the extraction, formatting, cleansing and analysis of large volumes of data and transactions from numerous systems. Data is often outside their direct control driving the need for more spreadsheets and increasing the likelihood of errors.

Reporting is also becoming more problematic. Many businesses and industry sectors have to deal with more complex VAT calculations including partial exemption calculations such as special method and goods schemes which are time intensive to perform. As organisations transition to MTD for VAT, they will have to juggle both manual and automated adjustments, again increasing complexity.

The state of play

Today, tax and finance teams' time and skills are undoubtedly being monopolised by these processes. Our research indicates 75% of tax professionals' time spent on compliance is typically dedicated to manual data collection, and it's a problem that's set to worsen. Should MTD for corporation tax arrive, we could well see a four-fold increase in workload given that reporting may well move to five times a year.

Similarly, changes brought in under MTD for VAT will create disruption initially. In our 2019 Tax Professionals Survey we found that respondents had specific concerns over the time more advanced VAT reporting will take, with 65% worried about managing adjustments for elements such as fuel scale charges, partial exemption and error corrections and almost half (42%) were concerned over how the change in regulation would affect special schemes like retail scheme, flat rate scheme, and margin schemes.

The time being dedicated to compliance could be better spent on value added activity such as strategic tax planning. Indeed, many tax professionals resent the time dedicated to compliance workloads, with 68% stating they wanted to free up their time using automation in our survey while the ACCA Generation Next Survey 2018 revealed that 85% of new tax entrants believe technology will provide them with the means to re-focus on more interesting value-added activity.

For many CFOs, the imperative is to reduce the time spent on data collection and the input of complex calculations into spreadsheets. Happily, MTD presents the ideal opportunity to explore not just how processes can be digitalised but also how they can be made more efficient in order to free up resource.

Working smarter

Using an MTD for VAT solution that addresses not just the immediate submission requirements but also the use of digital linking which will be mandatory from April 2020 (or October for those with complex VAT reporting under the deferral), the business can benefit from end-to-end control over the calculation, preparation and management of VAT compliance. A software compliance engine such as AlphaVAT provides this source to submission capability and builds upon the core requirements of MTD to help the business create a more efficient tax process.

Data is mapped and then automatically extracted from accounting/ERP systems or relevant spreadsheets massively reducing workloads. Automatic data checks ensure content and formats are correct and potential errors are identified within source data at a transaction level, whilst automatic data filtering allows large data sets to be more easy segregated, spot checked and queried. Automation of calculations can also be enabled so that calculations for VAT groups or partial exemptions as well as transactions can be performed without the need for human input. As a result, users no longer need manually create formulas in spreadsheets, significantly reducing the capacity for error, while the ability to perform manual adjustments is preserved.

Compliance engines such as AlphaVAT also help tax professionals work smarter. The engine replaces the HMRC portal with an MTD Compliance Portal from where Business Tax Account data can be viewed alongside current and future obligations. From here it's possible to carry out administrative functions, such as adding entities or determining individual user access rights. The system also incorporates helpful nudges and prompts to provide built-in support and deadline alerts to flag forthcoming obligations.

Incorporating these tax processes into one platform ensures the tax professional can focus on reviewing and analysing data without the need to dedicate hours (or days) to its collection and reporting. It provides a single touchpoint for digital audit trails and puts in place processes that will lend themselves to other digital taxes in the future, such as MTD for corporation tax, and in this way, not only ensures compliance but generates efficiency gains. MTD for VAT therefore presents a real opportunity to free up resource and make the business more productive while creating resilience against future regulatory change.