BUSINESSES often outsource tax functions to save costs but arguably there are more important benefits to take into account. In particular, outsourcing should minimise management distraction from “front office” matters and reduce risk by providing access to a pool of specialist resource.
Transparency and an uninterrupted flow of information provide the key to unlocking these important benefits. Particularly with tax outsourcing, it is essential that provider and client work closely together.
Tax authorities, cash-strapped and under pressure from politicians, have tightened penalty and enforcement regimes. At the same time increasingly complicated tax laws make it difficult, even for the most conscientious businesses, to always be in compliance. Even simple, innocent, mistakes can be punished with penalties and take valuable management time to rectify.
To get tax right it is necessary to understand its context. Outsourcing providers should insist on understanding their client’s business and the client must be transparent with its information flow on organisational structure and business operations. This is particularly important where the business is going through change such as a buy-out, or is being set up for the first time.
There will be complex and wide ranging tax issues and it is important to have “joined-up thinking” between management, operations and those who account for the results and complete the tax returns.
In a well-run internal tax function, the tax director’s constant dialogue with management allows him to apply his trade to the actual facts and to anticipate issues as they arise. Outsourcing should achieve the same result.
Whether it is in-house or outsourced, tax return preparation cannot take place in a vacuum; clear and frequent communication is essential. An outsourced tax provider should know as much about your business as an internal tax or finance director. Where other functions are also outsourced, all parties must be able to work in cross-disciplinary teams as they would do internally.
Nobody should operate in a silo or be excluded from information.
This is particularly important in cross-border situations where co-ordination and consistency are necessary across multiple jurisdictions. Tax authorities share information and incorrect presentation of a transaction in one country could easily cause problems in another.
Increasingly, technology allows talented people to build valuable businesses with minimum headcount. These can be particularly exposed to tax risk since they are unlikely to have the internal resource to cover all aspects. A good outsourcing partner will provide depth of resource and continuity of service by having a team of specialists who understand the client’s business.
This can provide effective support to the time-constrained finance director and offer considerable savings compared to recruiting in-house specialists, which can often be disruptive, time-consuming and expensive.
An effective outsourced service provider will offer the technical knowledge to interpret the information provided and prepare compliant returns. To add further value, the provider should bring insights, solutions and best practice processes drawn from the experience gained from its wide client base. The client benefits from the early warning of law or practice changes and a service that adapts.
Outsourcing should cut costs but using it solely for compliance processing is short-sighted and can create risk unless communication is effective. If you outsource, pick a provider who can and will work as part of your team and this will enhance the overall efficiency of your business by helping you to comply, pre-empt and manage risk and provide you with more time to focus on your business imperatives.
Trevor Brown is managing director of Throgmorton
Phillip Gershuny, senior tax partner at Hogan Lovells, outlines how a European exit could affect UK taxes
London accountancy firm Blick Rothenberg warns of potential damages VAT changes could cause UK businesses
Two PwC whistleblowers and journalist to stand trial over alleged leaking of corporate tax documents
Governmental pressure to crack down on tax evasion is resulting in HMRC applying its criminal investigation policy in an inconsistent manner, writes Kingsley Napley's David Sleight