John Forth, RSM’s head of VAT and indirect tax in the North East
In the run up to the spring Budget on 8 March, many could be mistaken for thinking that the Government, tax authorities and the media are all firmly focussed on the amount of corporation tax large multinationals, such as Google, should be paying.
But closer to home, what are the tax risks for North East businesses? Despite being perceived as just an “in and an out” tax, VAT has the potential to cause businesses a significant headache – as well as unexpected costs.
Local businesses are confirming what we are seeing across the country. Fewer VAT inspections and lack of individual business knowledge from non-local HMRC contacts is creating greater uncertainty, which is not ideal as the Revenue is clamping down on penalties when things go wrong.
Overlay Brexit and the potential complexity of withdrawing from the single market and the free reign of the UK to decide its own VAT rules, and a perfect storm may well be brewing.
Although there will be areas of complexity for particular sectors, the root cause of many errors can often be traced back to three key points.
Firstly, poor data can undermine the integrity of a VAT return, so businesses need to ensure IT system configuration and VAT functionality is in place – and make sure staff is fully trained – to mitigate any risks. In addition, the responsibility of VAT sits with everyone in an organisation, so raising awareness across all departments can help to reduce risks.
Relying on complex standalone VAT return spreadsheets that include complex formulas and can be subject to numerous adjustments is another area that catches businesses out as it can increase processing risk.
In addition, abnormal transactions that fall outside normal accounting processes are infrequent, and can carry big VAT risk, as they are normally of significant value and can sit outside the team’s area of expertise and process guidelines.
When businesses are thinking about any resolutions, understanding what its VAT processes look like and what represents compliance and best practice for each business could be a good place to start.