The devil’s in the tax data

Digitalisation isn’t just about converting manual tax processes; it’s about what it enables you to do with the resulting data. Once you have reliable datasets, it’s possible to use that intelligence to manage risk, control costs and gain strategic insights.

It’s a move that has radical repercussions for the tax and finance team. This is because, rather than adopting the traditional reactive rear-view mirror approach whereby the business is focused on what has already happened, the business can transition to a predictive stance, where it can anticipate and accurately gauge results – and plan accordingly.

Checking the data

 To get to this stage whereby data becomes actionable intelligence, it’s first necessary to address the quality of your source data. In our recent survey with Accountancy Age, we found that two thirds of those we questioned did not have complete confidence in the figures they used to calculate their Returns. In order to address this, checks and balances need to be built into the process to detect and flag anomalies. Some fundamentals would include:

• Identification of duplicates across multiple data sources
• Spotting out-of-period transactions
• Detecting unexpected VAT rates within the transaction data
• Uncovering intra-VAT Group transactions that should be excluded from the return

Cleansing the data in this way can dramatically reduce the risk of errors creeping into the Return, as well as reduce the likelihood of an investigation and the potential for penalties.

Subjecting it to analysis

Armed with the correct data, it then becomes possible to subject it to analysis. It’s here where things get interesting as there are a range of analyses that can be conducted. You can apply descriptive analysis to determine what has happened, diagnostics to determine why, and predictive analysis to forecast likely outcomes, for example.

Right now, it’s extremely difficult to perform predictive analysis on VAT data because this requires period-on-period comparisons and most of the data is often siloed in spreadsheets. Freeing this data up and making it available to a computation engine can automate many of the manual processes previously carried out within the spreadsheet.

This means that tax and finance teams can then focus on conducting trend analysis to forecast report figures based on previous returns. Trend analysis allows you to highlight themes or unusual movements compared to previous returns so that you can:

• Compare and contrast current and historic submissions and period-on-period payments for unusual deviations/errors
• Highlight potential inaccuracies (eg blocked, excluded, manual adjustments), thus allowing you to remove and recalculate as required
• Perform more accurate forecasts and comparisons against projected liabilities
• Gather insights into data quality and error rates

Shortening time spans

Being able to conduct analysis in this way has the power to transform the VAT process. The same Accountancy Age survey revealed that two fifths of tax professionals surveyed spent over 25 days per annum and 20 percent spent over 50 days per annum on collating, identifying and inputting VAT data, revealing how labour intensive the review process can be. Using predictive analysis can significantly reduce the review process and, at the same time, improve confidence in the Return being submitted.

Predictive analytics is undoubtedly going to be a key requirement in the future, and press reports claim that by 2025 most finance departments will be using predictive analytics in some way. We can therefore expect to see the role of the tax professional become more strategic, encompassing some of the attributes usually associated with data scientists and analysts.

Facilitating transparency

Businesses want and need the transparency that digitalisation can confer. It allows them to access and interrogate their tax information dynamically as and when required so that they have a greater understanding of their financial position and compliance status.

This transparency is likely to become ever more essential as we move towards a digitalised tax regime. HMRC may well demand more visibility of the process, with MTD for VAT requiring evidence of compliance, from source to report, under the digital links mandate. It’s therefore vital that businesses consider automating their data reporting and error detection.

To find out more about how you can harness the power of analytics using AlphaVAT, please contact us via [email protected] or on 01784 777 700.