In the latter half of 2018, Arkk began meeting with both clients and prospects alike to discuss their new requirements for HMRC’s Making Tax Digital for VAT mandate. Hundreds of meetings later, across businesses of different sectors and sizes, we’ve heard many unique challenges faced by Indirect Tax Managers. Our tax expert Tom Aspinall takes a look at these questions in our latest MTD series to tackle the top issues faced by Tax teams in the run-up to the deadline.

Challenge One:  ‘We have to convince the CFO that we need budget and resource for Making Tax Digital.’

Many Indirect Tax managers say that it’s rare they need to request a budget to implement a new system or tax accounting software directly related to the VAT processes.

MTD Tax Accounting Software challenges

Often existing solutions, such as Enterprise Resource Planning (ERP) Software, is considered for satisfying the Making Tax Digital mandate. However, one of the main challenges for Tax departments is that ERP systems are owned by the Finance function and there’s often not enough input from Tax teams. ERP systems span multiple departments, are business critical and have been heavily invested in. There is often an assumption that the most cost and time efficient solution would be for the ERP system to cover MTD requirements.

The issue here is that ERP systems don’t traditionally cover Tax ‘out of the box’. They can be configured to do so but at a significant cost. The more sophisticated or challenging elements of MTD, such as recording adjustments, or improving Tax Processes in general, are not core to basic ERP functionality.

What if your Tax software could not only ensure you are compliant but improve your workflow and, moreover, your day-to day job?

Most Indirect Tax Managers carry out their adjustments in Excel and don’t always have an efficient, compliant way of storing them. The raw data extracted from ERP systems is often littered with errors (such as duplicate invoices, wrong VAT codes and more!) which require laborious manual intervention.

Machine Learning can help solve this challenge by interrogating large volumes of data in seconds within tax accounting software. Not only does this save hours each time (which accumulates to become days/weeks over the course of a year), but it can also help identify costly errors. Arkk recently utilised this capability to uncover £20,000 in overpaid VAT for a new client. This could turn out to be a far greater figure for a business with large volumes of GL data.

Tax teams often tell us that parts of their VAT process are inefficient and that there is always a risk element attributed to human error. Therefore, rather than viewing MTD purely as a compliance exercise (that could be temporarily patched with a free API / Bridging software), an MTD related project can present an opportunity to improve processes, refine day to day workload and even recover overpaid VAT!  If communicated effectively, these significant advantages present a clear business case to invest in the right MTD solution.

Check back next week when we’ll cover more challenges (and how to solve them!) including what automation means for the tax role and looking beyond basic-compliance. In the meantime, if you work in Tax and this resonates with you, please get in touch with Arkk Solutions.


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