Embrace automation in the indirect tax process

Managing indirect tax is a tough job and with Making Tax Digital (MTD) it’s about to get tougher. However, MTD could be just what all businesses need – a push to evolve processes and embrace indirect tax technology to revolutionise their tax departments.

After all, HMRC is not the first to take on the digital tax administration journey – Brazil, Spain, Italy and Hungary have all set the pace with innovative ways to close their VAT gaps.  For this reason, a short-term “sticking plaster” approach to help meet the MTD requirements can only be interim.

The recent deferral of the MTD timeline to October 2019 is an opportunity to work closely with IT departments and move away from time-consuming manual tasks and spreadsheets through automation. What’s more, tax experts within the business will be able to focus on strategic activities which will, in turn, bring greater value to the organisation.

Global changes

That doesn’t just work for meeting HMRC requirements in the UK but also with ever-evolving legislation and changing rates as new indirect tax regimes spread across the globe. Some goals set by tax authorities seem unreachable, but they can become a reality if indirect tax processes are automated with the right technology in place.

This will not only enable tax departments to be more strategic but also drive greater collaboration and transparency across finance, legal, procurement and IT teams to streamline processes and improve efficiencies.

Stakeholders in a business should be able to see that the investment in the right technology has the ability to catapult an organisation to the next level of cost reduction, automation, and overall operational efficiency. A compelling business case for indirect tax technology will address several critical points:

• Improved accuracy
• Repeatable, scalable process
• Improved tax compliance and audit defence capabilities
• Decreased cost to business, in terms of less penalties, audits and time
• Flexibility to stay ahead of further tax changes
• Improved IT infrastructure
• Renewed focus on value added activities

Once the argument for indirect tax technology has been won, both tax and IT departments will need to work together to determine what type of solution should be deployed. There are three primary options to choose from:

Cloud-based solutions

The major advantage of these is that the technology provider will have personnel dedicated to the hosted solution. They will work around the clock with state-of-art fire suppression, back-ups and power redundancy.

Businesses opting for this solution will need to ensure that the technology provider is ISO 27001 certified compliant. This solution will mean that the company will:

• Spend less on hardware and IT management
• Software and tax content updates will be applied automatically
• It’s always on which ensures disaster recovery and related support.

Private cloud-based solutions

With this solution the technology provider hosts it, but the business has dedicated hardware and software.

Opting for private cloud-base solutions means:

• The company has dedicated hardware and software
• Software and tax content updates are applied automatically
• There will be disaster recovery support.

On-premise solutions

This solution is often preferred by companies that want complete control over their hardware, usually due to contractual obligations with their customers. Installation will take place at the company’s own data centre and utilise its own IT personnel and resources.

On-premise solutions offer:

• Control over hardware
• The ability to roll into an existing IT environment
• Assurance that contractual obligations with customers are met.

While businesses will be focused on the critical transactions, looking at rate changes, taxability rules and compliance, they shouldn’t forget a few key principles when deploying the new indirect tax solution.

Testing

Load testing against environments by replicating high transaction volumes is important. Testing high volume traffic will ensure customers will not experience more than the expected three second delay or worse, downtime.

Knowing the limits in managing online traffic is important as well. Businesses should carry out a self-audit and verify tax calculation processes and procedures.  Sales tax audit exposure can add up quickly when sales taxes are not calculated correctly, especially during busy periods. Performing a review is a good preventative practice.

A series of tests should also be set up with the technology provider and the company’s IT team to check on performance levels. By collating this data both parties can work together to identify and resolve any issues.

Peaks and troughs

It’s important to identify what to do if things don’t go as planned so that the business can have an action plan in place should the worse happen. This should include both an internal and external communications plan, troubleshooting tips and a failover plan.

Baseline

It’s sensible to establish a baseline during the load test. This will help in identifying when the solution is under performing and can then be corrected.

With MTD less than 12 months away, now is the time to say goodbye to time-consuming, inefficient tax processes and embrace technology and all the benefits that an indirect tax solution can deliver. Automation will not only streamline tax processes and improve efficiencies but also enable businesses to adopt better working practices and focus on tax strategy and analysis that will stand the test of time.

Kim has over 12 years’ experience in indirect tax, and managed indirect tax compliance for several large, multinational banks and insurance companies. Kim is responsible for the tactical strategic direction of the ONESOURCE Indirect Tax solutions and identifying growth areas in the EMEA market by working and speaking to customers. Most recently Kim has put this extensive experience to use by leading a project to explore the use of machine learning algorithms for indirect tax processes at Thomson Reuters.  Kim holds a degree in Law from the University of Southampton and trained at Deloitte LLP.