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How to keep on top of ever changing VAT rules

Robert Marchant, Partner, VAT
08/01/2019
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Robert Marchant, VAT Partner and Head of Corporate VAT discusses how changes in the VAT regime are altering his client’s approach to dealing with VAT.

Increasingly my clients are focusing on their governance and ensuring robust processes and controls are in place. While it remains an aim, there is less emphasis on optimising ’what’ amount of VAT is due/recoverable and much more on ‘how’ VAT compliance is dealt with and ensuring that the right amount of tax is paid at the right time.

A change in climate

This approach reflects the changed climate in which businesses and tax advisers operate. Tax has become an emotive and high profile subject thanks to significant reporting in the mainstream media, punitive measures being taken by HMRC to rightly challenge tax evasion and a number of political and fiscal global disrupters (Brexit, US tax reform, changes in digital taxation and tariff ‘trade wars’ to name just a few).

Businesses are also having to deal with regular changes to UK VAT rules. In recent years, there have been a large number of VAT decisions in the tribunal and higher courts, and long running changes/disputes with HMRC in relation to areas such as holding company VAT recovery and pension fund VAT that are still to be resolved. Digitisation and new technologies are leading to new business models and ways of selling goods and services to customers. During 2019 there will also be significant changes stemming from Making Tax Digital for VAT which will require changes to organisations’ VAT compliance processes. There could also be Brexit and a ‘no deal’ would have the potential for causing significant disruption to businesses selling cross-border.

Operating in the real world

In an ideal world, if a business has clear and robust processes then it should be able to adapt to this changing landscape and to continue to meet its VAT compliance obligations. Dealing with change is a necessity and the following questions will help you consider how to deal with it.

Ways to prepare for VAT change

  • Do you have a process in place to identify changes in the indirect tax regime that are relevant to your business?
    The change could come from case-law, HMRC interpretation or new laws and could be in the UK or internationally; it could be to the VAT rate due on your products or a change to the amount of VAT you can reclaim.
  • Who is responsible for the preparation of the VAT returns?
    Are there clearly documented processes that would allow someone else to take this over if a ‘key-person’ is unexpectedly unavailable?
  • Who has review and sign-off for the VAT return to ensure that the numbers to be submitted are accurate and that any payment owing is made on time?
  • What training are the staff involved with VAT given?
    How often is this refreshed/kept up to date?
  • What process is in place to manage the VAT aspects of ‘exceptional items’ or non-routine transactions? 
    For example, VAT incurred on costs associated with deal fees or large one-off legal costs?
  • Could you use data analytics to look for errors and to test the reasonableness of the VAT return numbers that are to be submitted?
    For example, trend analyses and comparisons to previous VAT payments/repayments in prior periods.
  • What links are in place with the business teams that develop new products/win new business to ensure that new sources of revenue are treated correctly for VAT purposes?
  • How and when are indirect taxes considered where the business is considering making amendments to either the legal and physical relationships with its suppliers/ customers i.e. making changes to its supply chains?

Many of the above are considerations for businesses that are subject to the Senior Accounting Officer (SAO) regime which is overseen by HMRC and applies to all ’large companies’ (broadly, UK incorporated companies with a turnover in excess of £200 million in the preceding financial year and/or a balance sheet total of more than £2 billion). The SAO of the organisation has to certify that the company, and each of its subsidiaries, establishes and maintains “appropriate tax accounting arrangements”. In practice, this focuses on ‘how’ the business manages its tax obligations and in particular, the process and controls in place to ensure that the right amount of tax is paid, at the right at the time.  

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We can help

Crowe can help your business to respond to these challenges. As a member of the eighth largest global accountancy network we have the footprint to support on international matters and our team of UK specialists can assist you with domestic issues.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT
London