VAT (It doesn’t have to be taxing) - Part 2
How software helps you manage VAT compliance
Our last blog post detailed some of the ways that expense management software, such as Zetadocs Expenses, can help simplify VAT recovery. Today, we continue this and identify a few more ways in which expense management software can aid VAT compliance.
- Mobile App – the Zetadocs Expenses mobile phone app makes it easier for a traveller to submit expense claims and for their Line Manager to authorize them whilst on the go.
From the traveller’s perspective, they can take a photo of their receipt and justify the expense within the app. VAT is automatically calculated when the VAT rate is selected and the software helpfully warns them to mark when that VAT is reclaimable. Using a paper or Excel-based system, employees will generally fill out their expense claim when they return to the office. During the period between incurring the expense and returning to the office, they may lose the receipt. They may have forgotten to request a VAT receipt or didn’t realize the importance of obtaining one. Using a mobile app helps prevent these issues, empowers staff with an improved understanding of VAT and helps drive compliance, which in turn should help you recover more VAT.
- On Screen - the Finance Department are the last line of defence when it comes to expense claims and ensuring that the correct amount of VAT has been reclaimed. Expenses management software provides more structure and transparency, which leads to a greater ease of use and understanding. For example, the ability to see a receipt on screen, aligned with the transaction, is a lot easier to manage and comprehend than having to sort through many receipts stuck together by a paper clip as well as having to work out which transaction on the cover page they relate to. The use of software should mean more errors being detected and the correct amount of VAT being reclaimed.
- HMRC Compliance – HMRC VAT officers can visit a business to inspect their VAT records to ascertain if they’re paying or reclaiming the right amount of VAT. Reasons for a visit include that the company is in a sector HMRC see as risky or when there has been significant changes in a company’s VAT return trend e.g. the purchases to sales ratio is abnormally high. Regarding employee expenses, HMRC will predominately look at the expense claims and supporting documentation to verify the accuracy of the figures declared on the VAT returns. However, they will also want to gain an understanding of other parts (such as the approvals process) of the expenses system to determine how robust the company’s internal controls are. The stronger the internal controls, the more satisfied they may be that the VAT records for employee expenses are accurate.
Using a paper or Excel-based system, issues may arise such as:
- Receipts may have been lost
- Expense claims may have been misfiled
- Expense claims may not have been authorised properly before being paid
- VAT reclaimed when it should not have been
If any of the above issues were to arise, this would alert HMRC that there are weaknesses in the company’s expenses system and may lead to a more rigorous investigation being carried out. Using expenses management software would alleviate or eliminate these issues. For example, expense claims are stored in the software using a unique reference number and can be easily retrieved, while all expense claims must be approved before they can be reimbursed to the employee. Therefore, software can play a pivotal role in providing HMRC with assurances that a company’s expenses system exhibits strong internal controls, thereby making any compliance check smoother for both HMRC and the business.
VAT is one of the most complex taxes faced by a business and errors can be made that can cost you large amounts in unpaid tax, penalties and interest. Expenses management software, such as Zetadocs Expenses, can be easily integrated and has the capability of improving your VAT compliance, as well as fostering a culture of compliance within your business. This can maximize the amount of VAT that you reclaim, which will lead to an increased cash flow and bottom line.
Arrange a demo of Zetadocs Expenses now.