The first VAT returns under Making Tax digital (MTD) have now been, or are in the process of, being filed. Now that the deadline has passed, it is clear the regulation has provided impetus for digital transformation for many organisations.
Beyond MTD for VAT, integrated systems where manual tasks are taken over by AI can save time, money and increase accuracy. That leaves tax and finance teams free to focus on other tasks, such as working on tax relief claims or forecasting.
The Tax Team at University of Edinburgh were faced with this dilemma as the MTD October deadline approached. Having grown considerably over the past 5-10 years, the University was struggling with a legacy system in which most tax tasks were performed manually, using spreadsheets.
MTD for VAT created an imperative to comply by both filing VAT returns digitally and keeping digital records. It was also an opportunity to look at process efficiency savings and improvements across the board.
Head of tax Alastair McClelland said: “The big driver for us was Making Tax Digital.”
While MTD has served as an impetus for change, many tax and finance teams are now looking at how digital tools can improve their processes overall. The University of Edinburgh team chose Arkk Solutions to help them with this.
Russell Gammon, Chief Product Officer for Arkk Solutions, said: “MTD could be cancelled tomorrow, but what we are doing is bigger than that.
“It’s about tax transformation, automation and process management.”
Assessment
While the process of filing VAT returns had already been refined by the Tax Team themselves, taking the work down from two weeks to three days, there was still room for improvement. That process involved downloading data from the finance system and putting it through lookup tables to review the VAT treatment. It was all still being done in Excel, however.
The initial urgency was to comply with MTD legislation. “Because the VAT Return process was heavily spreadsheet based, the University discussed options with its HMRC Customer Compliance Manager. The University and HMRC explored the MTD requirements, and the University realised relying on its current VAT Return process was not robust enough due to the number of spreadsheets the University had to use [to comply with MTD],” Alastair McClelland said.
As an in-house enhanced and linked spreadsheet solution was deemed not viable, the team worked to identify the gap between where they were and where they needed to be, so they could find a provider who would be able to meet their needs.
The University’s tax compliance officer Magda Sidwa-Ciesnikowska said: “We wanted to take this opportunity not just to be MTD compliant but to further improve our process for producing the VAT Return. Identifying the solution we needed took some time.”
Choosing the right partner
Once the assessment of what the team needed was complete, the next step was choosing a provider for a new software platform. While the team looked at some established big names, it was a smaller company that eventually caught their eye.
“Because of their size, Arkk Solutions were able to be a bit more nimble than other potential suppliers we spoke to,” Alastair McClelland said. “They seemed to be prepared to be more flexible with how we worked and how we were set up.”
Magda Sidwa-Ciesnikowska said the benefit of working with Arkk Solutions was they were able to build and adapt a tool which was based exactly on what the Tax Team needed, given the University’s diverse processes.
“They listened to what we said about how we wanted to work with the tool, and explained the options the tool offered,” she said.
Implementation and internal change management
Part of the process involved an internal, cultural change, beginning with the Tax Team letting other departments know that filing and reporting digitally, for VAT, was now mandatory.
“We identified parts of the University’s record keeping that weren’t compliant with MTD and explained to colleagues that MTD was coming so it was a legal requirement to change the way we kept these records. We then worked with those colleagues to automate those parts of the finance system,” said Alastair McClelland.
The key to bringing them on board was understanding the need for change, how it would affect them and what the new process would look like. Time-consuming manual tasks would now be done quickly and automatically, saving time which could now be spent on other tasks.
Seeing the benefits
Another process efficiency that the new solution is delivering focuses on the University’s tax relief.
Alastair McClelland said: “We’re a big research University, about a third of the University’s income is research related, and a significant amount of that is medical/veterinary related. There are a number of statutory VAT Zero Rating reliefs available to the University, but in the current system configuration it is difficult to check if the University is taking advantage of those.”
Now they will be able to analyse and review the data to check where the University may be missing out on tax reliefs.
The Tax Team will also now have time to revise guidance for staff, who might not realise when a VAT issue needs to be raised, such as when purchasing goods from outside the UK.
“Identifying goods and services for Acquisition Tax and Reverse Charging has always been quite a challenge in any finance system,” McClelland said.
Machine learning which is built into the tool can recognise patterns and predict the VAT treatment, based on factors such as the supplier or the product being bought.
It will then flag up anomalies which can be checked by the Tax Team, building on what it learns from the new input to improve its predictions as time goes on.
Challenges ahead
MTD was just the beginning for the University of Edinburgh team, and for their relationship with Arkk Solutions.
In the future, they hope to develop a dashboard where they can see vital data in one place. The system will also be adapted to take account of new legislation as it comes into force.
Following MTD, some other statutory reporting requirements will be automated, including country-by-country reporting.
“We also wanted to be compliant with Making Tax Digital for corporation tax, which is on the horizon,” Alastair McClelland said. “There are icebergs out there, and there is no excuse for not spotting them when they are well signposted.”