By Russell Gammon, Chief Solutions Officer at Tax Systems
Now that HMRC’s Making Tax Digital (MTD) VAT requirements have kicked-in, all VAT-registered businesses are subject to mandatory online MTD submissions. But as the rollercoaster digitisation of the tax system continues, there are further changes to keep financial leaders on their toes – a similar initiative for Corporation Tax (CT) is to follow by 2026. All organisations, irrespective of size, must understand the requirements – both current and imminent – and revise strategies to be well-positioned for when the final regulations are in place.
Until now, there’s been little incentive to synergise reporting of VAT and Corporation Tax due to their different delivery timescales, processes and requirements. Yet MTD for CT throws up some new deliverables to add to the annual return in the form of mandatory quarterly reporting of key accounting data-points. Knowing the process is vital to avoid inaccurate data calculations and non-compliance penalties by not closely aligning the VAT and CT processes.
Synching VAT and CT tax processes
Since the current system doesn’t necessitate leveraging data across multiple tax streams, many businesses risk being underprepared for what’s to come. Typically, disparate teams manage the CT and VAT processes, drawing from different data sources at different times. These teams currently do not need to collaborate, or even to connect.
There are different tax return cycles too, with CT filing twelve months following the accounting year end, and VAT either monthly or quarterly, reporting 30 business days after. VAT operates on near-term data whilst CT operates on data that has long since been checked and finalised, meaning there’s minimal overlap of both processes. However, the introduction of MTD for CT requires a slick synergy of both processes like never before.
Impact of tech on the tax system
It’s interesting to consider ways in which MTD for CT might manifest itself in the tax industry over the next few years. Tax data will no longer be dealt with twice, as the current CT and VAT processes dictate. This provides a golden opportunity for organisations to embrace technology to streamline processes, and even to create new roles within the tax team. It’s not a stretch to imagine a new role such as the tax data expert being created, whose responsibility is to ensure the quality and integrity of the data for tax purposes. Considering this sooner rather than later may alleviate pressure in what always seems to be a sudden changeover period in operating model changes.
Is outsourcing an option?
How to handle the added workload for these changing tax processes needs careful consideration. This may be dependent on many factors, including the size, type, and industry a specific organisation operates in. The two options are to source tax compliance from within or to outsource this. It’s reported that currently in the UK, 85% of CT returns are outsourced to agents for calculation and filing, however there’s a significantly lower figure for VAT returns.
The proposed MTD for CT may see more organisations bringing these filings back in-house to improve the alignment between the tax processes. Either way, it’s likely that both processes will be handled on the same basis – either in-house or outsourced – to build in efficiency and accuracy. This may spark the development of new business models, where tech plays an increasing role. For instance, co-sourcing, whereby a corporation and their outsourcing partner work closely together to deliver tax.
Using data-based tax calculation tools
As regulation and technology are introducing a fully digital tax system to improve accuracy, the current autonomous corporate approaches of CT and VAT are set to give way to a unified, data-driven approach to tax filings. In fully integrating the tax teams with shared data, a single source of truth will be created in the form of a reliable set of source data that can be repurposed for any tax.
The new generation of UK-specific VAT and CT applications offers many benefits including increased accuracy, the elimination of laborious data formatting, a more seamless process, de-duplication of tasks and improved employee productivity, as well as cost savings. Delivering over and above mere compliance, dedicated tax systems enable more complex calculations and provide more timely, precise and transparent data, which enables more intelligent decision-making.
Starting early for a smooth transition
It’s never too early for organisations to commence revising strategies for tax compliance processes, ensuring the requirements of current systems align to MTD for CT needs. This may mean investing in tax technology that integrates with new as well as legacy systems. By focusing on data quality and integrity first, businesses will effectively synchronise their tax operations for CT and VAT in a way which works for their specific organisation. Making this move now will provide valuable time to allow for any preliminary adjustment or issues and ensure that you are ready well before the compliance deadline.