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
As an in house ftse tax director I've got to say that this article is totally misleading. Outsourcing a tax function rarely cuts costs. It also may leave an SAO exposed. Under SAO regulations an FD shouldn't be trying to send less time on tax. That's when the fines roll in. Contrary to this article most businesses are bringing tax in house to comply with risk legislation. I cannot emphasise enough how illogical and out of date this article is.
Posted by: tax director, 12 Feb 2013 | 12:47
I view this article as encouraging non-compliance with SAO. It is clear that the world has changed and actually tax in the boardroom is very real now. Encouraging senior finance people to spend less time on tax is non-compliant withy SAO and extremely dnagerous. I view this article as a "sales pitch" and inaccurate.
Posted by: Lee , 12 Feb 2013 | 13:00
With companies under increasing financial pressure, it’s imperative that they are investing in the right IT systems to allow greater visibility of their finances.
The accountancy profession is fast reaching a tipping point, with many clients questioning the value offered by typical accountancy processes. Companies know whether or not they have made a profit – an accountant simply verifies the details, many months after the event, and ensures regulatory compliance. There is little commercial value in that service – and savvy businesses are pushing back on price as a result.
Finance professionals need to exploit cloud-based book-keeping solutions to take a far more proactive role in each client’s financial affairs. Unlike traditional book-keeping software solutions, these systems combine a degree of self-learning with integrated workflows between the accountant and business, fundamentally transforming the way SMEs and accountants can interact on a day to day basis.
This real time accountancy process delivers a number of benefits: at the most basic level, a VAT return can be completed in a second because the information is already in place and verified. There is no need to spend extra time checking that figures are accurate, in the right period and that accruals are correct – that process has already been completed. Similarly, the end of year accounts process is virtually seamless, providing significant cost savings for the accounting firm.
Critically, this approach can transform the value of the service offered to clients. Rather than low profit book-keeping, firms can offer a range of services that essentially fulfil the role of a virtual Financial Director (FD).
Posted by: Barbara Kroll, 27 Feb 2013 | 14:18
Where penalties are becoming more onerous surely it should be the people 'on the ground' who are working within the company who should be doing the tax computations - as they will be the ones with the insider knowledge of unusual items that may have a tax impact.
Posted by: Marion Hodgkiss, 28 Feb 2013 | 12:32
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