E-invoicing and live digital reporting mandates mean VAT and GST must be calculated accurately in real-time to avoid blocked invoices, audits and potential losses. How to rise to the challenge
The ‘luxury’ of a few weeks to retro-calculate transactional VAT or GST is coming to an end as tax authorities rollout live e-invoicing and digital reporting. Errors in calculations will likely be identified immediately by the authorities or even customers with the option to refuse sales or purchase invoices. Unchecked, sside from the cash flow risks of delayed payments or fines, this will create a huge workload for tax and finance teams.
In the second of two blogs (see first on importance of data availability), I will be exploring the challenges associated with tax data, data accuracy. I will also briefly discuss how VATCalc can help drive unrivalled improvements in tax accuracy using powerful, no-implementation tools such as our VAT Auditor to real-time verify all calculations.
Data accuracy – time is no longer a luxury
Data accuracy relates to how accurate companies are at applying VAT to their business transactions and to the returns and electronic submissions that are sent to the tax authorities.
Although it is far from ideal, companies have generally managed to get by with inaccurately taxed transactions because in a periodic world they have had time to do “compliance work” after the fact to try to pick up errors and adjust their returns. This has meant that they could manage with manual tax coding, basic native ERP tax determination and out of date tax engines. As we move closer to real time submission of tax data to tax authorities this compliance work time simply won’t be available anymore and there will be a requirement to correctly tax sales and to quickly identifying issues with the tax on purchases immediately.
Master and transactional data accuracy
To achieve this companies will need to think about two things:
Many companies have grown inorganically and have diverse and heterogenous systems environments comprised of different platforms used in different ways and this nearly always results in poor quality data. Even those that are on a single platform will usually find that data is managed very differently from region to region or from division to division.
Collecting and maintaining master data is the primary challenge and will require thoughtful management since there are often difficult challenges and trade-offs to consider such as:
Forward looking tax technology teams need to focus on the data problem and establish an intentional framework to collect and manage high quality appropriate data for tax. This requires tooling and expertise.
Tax systems & processes accuracy
Precision is critical and whether a company uses dedicated determination, returns and e-invoicing software or they manage it natively by building these capabilities in house it is essential that the right level of granularity is maintained. It’s not good enough to have a tax service that addresses general tax patterns anymore, businesses need systems that address taxation exactly in alignment with the legislation. Getting it right “most of the time” or making do with “close enough” will quickly be picked up in the upcoming transparent tax world.
Building systems like this requires up to the minute insights into legislation, immediate reaction to changes and the technical capability to properly reflect the correct taxation in your determination, returns and e-invoicing systems. This is expensive and requires niche tax and technology skills.
The reality is that not many companies that have in-house built/ configured tax determination or reporting systems (or even long-term deployments of early generation tax systems) can genuinely say they feel confident that they do more than “get it right most of the time.”
What can VATCalc do to help
As I mentioned in the data availability article, there is no magic wand that a technology tool alone can wave here. This is a journey of intentional continuous improvement. I advocate for having an agile learning mindset where you expect to encounter unknown issues and understand that the right solutions can only be discovered along the journey.
VATCalc has an excellent technology solution that can help get companies get started by giving them great insights into where the problems are and by providing solutions to some of the most common issues they find.
VAT Auditor is a powerful SaaS tool that allows companies to easily upload transaction sets and have them automatically reviewed for data availability and data accuracy. It works by running a full legislation-based tax determination against each transaction and comparing the results it calculates with the results in the original data.
This is a great way to get started in the data journey because it can quickly identify the following types of issues:
- Data availability (where tax relevant data is missing)
- Data quality, where the underlying master data is incorrect (such as VAT registrations)
- Data quality, where the original tax determination might have been incorrect
- Data quality, where tax reporting might end up being incorrect
This can give tax the insight they need to start to make improvement in their data capture and data management as well as identifying possible issues in the tax logic of their upstream systems.
If you want to learn more from me, or the rest of the VATCalc team, on how to develop ideas for your local architecture and national tax requirements, contact us for a friendly chat.