Tax compliance is no easy task. I am sure that some businesses would appreciate a magic wand to wish away their tax reporting.
It can differ considerably from country to country, which in the past has meant a great deal of deliberation for businesses that need to submit tax returns for multiple jurisdictions.
We are currently seeing the emergence of continuous transaction controls across Europe as tax authorities in France, Romania and Poland, for example, are moving to real-time transactional VAT reporting.
Additionally, the EU e-commerce VAT package has been introduced over the past year to simplify specific EU VAT compliance into a single VAT return.
These have affected UK businesses transacting with customers in other regions, as changes to filing regulations require a partner with local knowledge of filing dates, local language and someone to stay in tune with any further updates.
The UK too has set out its digital future with making tax digital becoming mandatory for all UK VAT-registered businesses regardless of turnover.
As we see these trends evolve abroad, it is almost certain that the UK will continue to build upon MTD to improve the accuracy and efficiency of tax reporting and collection processes.
Businesses today need a sidekick – such as a financial adviser – on hand to cover any knowledge gaps and double check their tax reporting to safeguard them from any unexpected costs due to non-compliance, for which repercussions can be severe.
Non-compliance consequences are not limited to statutory or legal penalties – often the indirect costs can be more significant, including the inconvenience and cost of correcting mistakes, and the impact on the company’s reputation.
So, as the tax and regulatory landscape continues to evolve, with brand and financial repercussions at stake, what do advisers need to know to be able to help businesses operating across jurisdictions stay ahead of the game?
Knowing what triggers a VAT audit
Audits from tax authorities can happen at random where it is not always possible to identify why it has been decided to initiate one.
However, certain businesses transacting in the UK are more likely to be audited due to their structure or business model.
Large companies, exporters, retailers, overseas suppliers who were unaware of their obligation to charge UK VAT and dealers in high-volume goods are the common victims, as the elevated number of transactions often brings them under the tax offices’ microscope.
The transaction volume also increases tax reporting and auditing complexity, so tax authorities are keen to ensure all information provided is entirely accurate.
The most common reasons for deeper investigations from a tax office are because of “trigger events”. These are mainly changes in the company’s status such as a new registration, a de-registration, or structural changes. For example, in many countries, such as Italy or Spain, VAT refund requests will also almost certainly cause an audit to take place.