Increased globalisation and rapid developments in technology are all having an impact on the way companies conduct their business. Business transactions are becoming increasingly complex which is continually creating new challenges in the application of VAT – which unlike most other taxes is a transaction based tax.
Often it is not fully appreciated that it is the commercial decisions taken within the business that determine the VAT treatment of the transactions that ultimately take place. It is quite common for staff to think that VAT is the responsibility of the finance team or tax function and so “not my problem”.
This is not the case.
Decisions such as:
- who to contract with (suppliers and customers),
- how and where to move stock to,
- how to code purchase invoices,
- how to price products and services, and
- what information to include on sales invoices
All have VAT implications.
These are the type of day-to-day decisions taken by the legal, logistics, sales, procurement, Accounts Payable, pricing and Accounts Receivable teams within the business, usually without any involvement of VAT or tax experts.
Important decisions such as whether to charge VAT or to reclaim it or to decide whether VAT has been properly charged by suppliers are therefore taken by the people who are embedded into core business activities and are often poorly trained on VAT matters and so unaware of the impact their decision has on the business. Very often there is a disconnect between these people and processes and the person, usually a member of the finance or tax team, who pulls the VAT Return together.
The VAT Return filing process may be done extremely well but the decisions taken by people at the heart of the business are made well before the VAT Return is compiled, and so any VAT errors have already been made and opportunities will have been missed.
VAT training is too often focused on the ‘finance’ team, which is entirely correct but not if that is done in isolation. The people making those core VAT decisions need to be trained too – but all too often this is not done.
The challenge for all VAT registered businesses is to ensure that their staff are adequately trained to effectively carry out their business and conform with VAT rules and regulations in order to avoid costly penalties.
If you’d like to find out more about the significance of VAT, check out our “Why VAT Matters to your Business” Whitepaper.