Tax compliance and the requirement to manage associated risks is a vital element for all businesses. As government enforcement strategies increase, businesses must stay on top of their VAT compliance and management to ensure operations continue to run smoothly and penalties are not incurred.
Tax challenges for businesses
There are a number of challenges related to tax that companies face and that, if not managed correctly, can severely impact finances, reputation and processes. These include:
- Submitting VAT returns – All companies must submit a company tax return via the online service on the government website using annual accounts.
- Paying the tax bill – Limited companies must pay corporation tax on all their profits and on anything that is made by selling assets in the relevant financial year (capital gains tax).
- Expenses – There are many business expenses that are tax-deductible meaning that these costs don’t count towards the final tax amount.
It’s crucial for businesses to accurately report and manage their accounts to ensure the right amount of tax is paid to HMRC. Even slight errors can result in negative impacts on the business, whether intentional or through genuine mistakes.
However, with the rise of advanced technologies, many businesses are finding innovative solutions to managing risk when it comes to VAT compliance.
Tax compliance solutions
There has been a recent rise in businesses adopting new solutions in the form of AI and other technologies to ensure adherence to tax compliance. Some of these innovations are:
- Automation: Tax automation software allows businesses to streamline compliance tasks such as VAT returns, invoicing and reporting. It also allows for accurate management of tax-deductible expenses.
- Artificial intelligence: Capturing data is at the forefront of tax compliance technology solutions and AI can gather information from a variety of sources quicker and more accurately than manual input.
- Analytics: Analytics software is able to identify risk and provide VAT compliance support to a business to help predict any tax-related issues.
What are the benefits of tax compliance technology?
Businesses are reaping the rewards of these innovative solutions in various ways. And while many are still relying on professional accountants to ensure they stay tax compliant, some companies are benefitting from results such as:
- Increased accuracy: Automation software is highly accurate and negates the need for human data input, therefore leading to a reduction in errors.
- Time saving: Tax reporting information can often be a tedious job but using these technologies means the same tasks can be done in just a fraction of the time.
- Reduction in the risk of non-compliance: Whether it’s due to inaccuracy, improper forecasting or even fraud, using automation can significantly reduce the risk of fines and negative impacts to business reputation.
- Opportunity to utilise resources elsewhere: Most businesses would rather focus on scalability, productivity and operations than spend time and money on manual methods for tax reporting. Tax compliance software allows companies to concentrate resources on areas that matter most to them.
While there are clearly a range of advantages in using such technology for tax compliance purposes, it may take some time for all businesses to get on board with the new solutions. A major factor in this is the time to train individuals in a finance or tax department to use new technologies, and the reluctance of some companies to stay ahead of the curve with tax transformation which requires them to alter their current processes.
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