Currently, value-added tax (VAT) is used by over 160 countries worldwide, spanning from Latin America to Europe, Africa, and the Asia Pacific. But for accounting professionals, this rapid globalization comes with tax compliance obligations in multiple jurisdictions.
Changes in governance and globalized business practices have drastically changed the way VAT is filed and processed. As a result, traditional VAT reporting has become fairly outdated, unnecessarily time-consuming, and costly. The lack of visibility and potential for errors in manual reporting is just too high. Meanwhile, the expected speed for filing has only increased.
In addition to country-specific requirements in terms of periodic filing and content specifications, more and more countries are using real-time VAT transaction information. However, the lack of consistency or standardization across the globe creates technical difficulties for businesses that wish to file on time.
To make matters more complex, there are VAT penalties if that tax isn’t paid in a timely manner or if a company fails to comply with other VAT obligations. The exact fines vary from country to country. For example, failing to complete VAT registration in the UK can result in a €4,000 fine. Meanwhile, in Germany, there are no penalties for late registration, but companies may be liable to pay interest or additional fees on their late VAT payments.
That is assuming, of course, that the VAT returns are filed without error. In the UK alone, over half of small business owners make errors related to VAT filing. And only 27% of those surveyed feel like they’ve made the correct VAT calculations and filed their return correctly.
This uncertainty stems from the ever-shifting global obligations from various tax authorities and international businesses.
However, there is a way for organizations to spend less time on VAT compliance reporting while reducing costs and potential errors.
Automation allows companies to streamline compliance efforts and retain control over the process. And nearly every step of reporting can be automated.
Automating the VAT compliance reporting process
There are about eight steps to the VAT compliance reporting process. While some steps are more complex than others, most of them can be fully or partially automated. Depending on your particular legal requirements, you may need to fulfill additional requirements.
- Data collection – Putting together VAT data from even a single purchase document can be time-consuming, let alone if you have several businesses or subsidiaries that are in different countries with no standardized process for document aggregation.
- Data verification – Generally, regulatory reporting requires you to validate the reporting entity, reporting country, and reporting period.
- Data quality checks – It’s tempting to forgo data quality checks, as this is a tedious activity to do manually. Automation, however, can almost instantly validate global VAT compliance standards such as tax codes, rates, currencies, reverse charges, and more. Inconsistencies are flagged for further review.
- Draft returns – At this point in the process, the data is transferred to the appropriate VAT return template. If you are juggling VAT reporting in various countries, you will need to deal with different languages as well.
- Reconciliation – Here, you will need to review the credit balance, which VAT authorities will require a return, and the amount of VAT paid or received.
- Review – Before filing, it’s important that the VAT returns be reviewed in your native language and in the language used by the relevant tax authority. Having an automated system can provide both items in a seamless interface so it’s simple to sign-off on the return.
- Filing – VAT filings are usually archived via uploading documents to an online platform. Some automation platforms use APIs that save acknowledgment data from the tax authority portals for potential audits.
- Payment – Finally, you will either make a payment or receive a return through your ERP or banking system. Records of this payment should be automatically reconciled with the right VAT reporting platform.
Get started with automated VAT reporting
When it comes to filing VAT, automation can help you submit your returns on time and save you hours, if not days, of work. By reducing human error, capturing data from purchase documents, and generating VAT compliant reports, the right automation tool can make VAT reporting easier than ever.
With Itemize, clients have saved up to 60% of the value of their goods and equipment while streamlining their process. Find out if our automation platform is right for you and get your one-on-one demo today.