Transform VAT Compliance: Top 5 Features for Your VAT Returns Software
Whether you are an in-house tax or finance professional, product manager or general manager, you're probably aware of the importance of complying with Value Added Tax (VAT) regulations. However, VAT compliance is a complex and time-consuming process, especially for global businesses with operations across countries. That is why many businesses opt for VAT return software to help streamline the work and processes needed internally. However, not all VAT return software is created equal. At Fonoa, our teams have seen (and experienced) tons of pitfalls and failures that you want to prevent. So today we'll discuss the top 5 things that your VAT return software should do to transform your VAT compliance process.
Provide Real-time Monitoring and Alerts
One challenge is understanding your tax compliance requirements in an ever-changing global business world. Instead of having to manually assess your obligations in every country, your VAT return software should be able to monitor your VAT compliance obligations in real time. It should tell you when to register, where to register, what risks you are running when deadlines approach and remind your teams and stakeholders on what to do. This will help you stay on top of your VAT obligations and avoid potential issues or penalties.
So don’t look for ‘just’ a comprehensive compliance calendar with filings per country, per business entity, and per period. That is crucial, although most software solutions don’t offer it. Look for that, but also for smart software that is able to proactively provide alerts and notifications when necessary, so you can take timely action.
Lessons learned: Watch out for solutions that heavily rely on human input to create updates and ‘traffic light status reports’ to understand the status of your global VAT compliance and filings. That often creates more work than benefits for your entire organisation, resulting in workflows that move in slow-motion.
Streamline Data Collection and Organization
One of the most time-consuming and often manual aspects of VAT compliance is collecting and organizing relevant data from various sources. Your VAT return software should be able to streamline this process by collecting the necessary data (such as sales transactions, purchase transactions, and other information) and organizing it in a way that makes sense. This will help ensure accuracy and minimize errors. The system should take your formats rather than requiring you to manually adapt to theirs.
Lessons learned: Manually adjusting and bridging data from one source to another is not a solution; it is extra work.
Validate Your Data and Automate Calculations and Filings
A major common issue across finance, and particularly in-house tax teams is that there is too much to do, in too little time, with too few people. For this reason, you want your VAT and tax compliance software to be as advanced and intelligent as possible. It should effectively serve as an additional resource. But what does that mean practically?
For one, it means that your VAT return and tax technology should be able to validate your business and finance data with some common sense and tax-specific logic, and automatically raise concerns about data quality to save manual review time and human error risk. It should also be able to automatically calculate your VAT positions and potential liabilities, per filing. In addition, it should be able to do most of the heavy lifting without human help. That is to say, your software solution should be able to generate VAT returns and filings in a timely manner, ready for your review, with helpful input on attention points and potential issues, so you don't have to worry about missing deadlines or incurring penalties by going through your tax data line by line.
Lessons learned: Most tax compliance software is mainly focused on either workflow and calendar management, or used as a tax calculator and repository. Expecting more functionality in your tax technology that follows your workflows and is intelligent is highly recommended and will drive value (higher efficiency, lower risk, more insights) to your organization.
Single Source of Truth
While this is a utopian concept for most organisations and finance functions, there is merit in exploring how your VAT compliance and tax technology can create a single source of tax truth. This is because the benefits are numerous, and the downsides of fragmented tax information are abundant as well.
If you have a single platform from which you work with your raw finance input that you use for making your tax adjustments, collaborate internally and externally with advisors and team members, generate your tax returns, maintain your audit trail and store all your information including working papers, submission evidence and payment confirmations, you ensure that any current and future information needs are always available. This saves tons of time, resources and decreases information and tax risks for the entire organisation.
Lessons learned: Not having a single source of tax truth results in lots of manual work, searching for information, time pressure during tax and financial audits and team members scrambling to find out what happened in the past. Your tax software should be your single internal memory regardless of team changes, or advisor changes, and it should help you drive collaboration, not make it harder: lost email attachments anyone?
User-friendly Interface and Support
Last but not least, your VAT return software should have a user-friendly interface that's easy to use. This will help ensure that you can get started quickly and easily and anyone in your finance team or outside can use it. If your software requires lots of time, training and resources for people to understand and work with, it is likely not efficient and probably not user-friendly. Having bad software and tax technology impacts team morale and retention, as well as work quality.
In addition, your tax technology should not only support but promote collaboration in a single place. Being able to leave comments, remarks, assign tasks and see who is working internally and externally on your tax filings is functionality that will significantly help manage your compliance processes over time; regardless of team changes.
Lessons learned: Look for flexibility, fast deployment, easy to use and modern software that makes your team happy. After all, when your team members or external advisors change, you want to be able to still make sense of your tax technology and filings.