Digital transformation is affecting just about every aspect of a business. It’s hard to go a day without seeing how technology is permeating through industries and disrupting business functions, however, until recently the tax department has remained largely untouched.
Tied to Excel and manual data entry, the tax department has gone about its quarterly routine without much ‘digital’ interruption. Then along came MTD, HMRC’s new mandate to digitalise tax and shake up companies’ current processes.
Many large corporations still rely on manually extracting, reviewing and adjusting financial data for large volumes of transactions. This incredibly laborious, error-prone task can result in inaccurate figures being submitted, an outcome that tax administrations are attempting to reduce.
HMRC is pushing ahead with MTD for VAT and other taxes will follow suit shortly. As tax becomes digitalised there is an increasing need for tax functions to implement digital solutions to maintain compliance, however, before these solutions can be implemented there needs to be buy-in from senior management.
Influencing the influencers
The adoption of tax technology is not solely the responsibility of the Head of Tax. CEOs and CFOs all influence whether or not a solution is brought into a company to help improve processes and relieve some of the strain on the tax department. Getting buy-in for a department which is often seen as a cost centre is never easy, so it’s understandable to want to lead the conversation with cost savings. However, on many occasions, this route isn’t fruitful!
Selling in a tax solution primarily based on cost savings will never demonstrate the full potential of the software and the transformative impact it can have on not just the tax function, but the wider organisation.
Here are 3 focal areas for your tax technology discussion.
1) How effectively is the tax department spending its time?
A recent ATTest survey commissioned by Arkk Solutions found that over one third (37%) of companies take 21 days or more to prepare, check and submit their VAT returns. Doing the maths, based on quarterly VAT returns, roughly 1 in 3 companies spend nearly 4 months a year on VAT submissions. We’ll give you a moment to let that sink in.
Rather than focusing on cost savings, reorient the discussion around what else the tax department could be doing with this time. A digital tax solution could significantly reduce the amount of time spent submitting VAT returns, as well as other tax filings, allowing the tax function to concentrate on delivering higher-value projects to the business and providing actionable insights.
2) Do you know your business’s tax position?
Having an accurate overview of your business’s indirect tax position helps to instil financial confidence. Unfortunately, for most companies, having a real-time view of their tax position is often difficult due to several reasons. With that said, tax technology can help to provide businesses with an accurate, up to date tax snapshot to share with the wider business.
HMRC’s intention with MTD is to increase businesses’ tax transparency and accountability. Having a near real-time view provides tax and financial clarity, while also keeping companies accountable for discrepancies. Stakeholders such as investors, shareholders, suppliers and even customers are far more assured of a company’s financial position if their tax records are accurate, recent and transparent.
3) Reduce errors from manual data entry
A lot of effort goes into calculating and submitting the 9 boxes for VAT. For many companies, it’s a complex procedure of extracting data from multiple ERPs, checking thousands of line items and reconciliations. The old-fashioned method of manual data entry is prone to errors simply due to copy-paste mistakes or keying in incorrect digits. This may initially seem benign, but inaccurate figures can lead to serious cost implications and negatively affect a business’s reputation. Furthermore, these manual processes aren’t compliant with future MTD developments such as digital linking which will require companies to have a full digital audit trail.
In our recent survey, the accuracy of tax submissions was the most important issue for our respondents. And, although most companies surveyed believe their taxes to be either ‘100% accurate’ or ‘highly accurate’, 101 out of 416 organisations surveyed described their tax submissions as ‘moderately accurate’ to ‘not accurate at all’. Not being fully aware of your company’s tax liability can lead to hefty fines from HMRC and severe reputational damage. Digital tax solutions can alleviate this stress by minimising the need for manual data entry, resulting in greater accuracy in one’s figures.
Tax transformation is revolutionising the industry and heralding in much-needed change – tax technology being one of them. However, discussions with management should revolve around the value-add that these solutions can bring as opposed to the direct cost savings they offer.
With this knowledge in hand, is your organisation embracing digital taxation? If you’re interested in transforming the tax processes for your organisation, get in touch today to see what Arkk Solutions can do for you.
