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A little VAT knowledge is a dangerous thing…

Ryan Bevan 9 June 2016 No comments


It is a generally accept principle that people like to be adequately trained to do their job and get increased satisfaction in making a contribution to a business benefit or saved cost. Therefore, a failure to continually update the staff knowledge base can easily be interpreted that the role they have is static or unimportant to the organization, creating the potential for significant turnover in key staff members.

When it comes to VAT, we have seen so many times that ‘key-man’ employee turnover creates a culture whereby roles are devalued and the employees filling those roles are less motivated to do their job anything more than adequately; this can lead to significant errors being made where key people are not given the tools to do their job better.

Interestingly, in a number of European countries (following the lead from Sarbanes Oxley in the US), senior management are now personally liable to ensure that VAT practices are satisfactory and people are trained adequately to do their job.

For example, in the UK under Senior Accounting Officer (‘SAO’) regulations, the personal fine levied against the SAO is £5,000 per failure to adhere to the guidelines set out by HMRC. Therefore, it becomes very important to recognize that providing the requisite VAT training and skills extends to those people making the embedded VAT decisions and not just to the tax or finance function.

From publications and meetings with senior HMRC officers, all the evidence suggests that in today’s business environment it isn’t enough to say “we have a tax or VAT manager who deals with that…” – the VAT process goes deep into the business and tax authorities are now expecting that to be recognized.

In response to the added pressure from HMRC, we are starting to see a shift in thinking by UK businesses in reaction to the SAO regulations – the growing consensus is that practical steps and actions are needed to be undertaken to ensure improvements in SAO ‘scores’ and ratings. Each business is assessed in a number of areas to quantify their ability to say that their staff and core business functions are able to respond to changes in VAT and ensure that their people are up to date with in their VAT knowledge.

For a number of reasons (the ‘VAT Gap’ and the ‘Policy Gap’ to name but two), tax authorities are increasing pressure and scrutiny on large businesses with an SAO requirement – it is thought that most businesses do not have an adequate strategy in place to deal with the increased pace of changes in VAT rules and practices.

A strategy is needed whereby documented, standardized and robust measures are put in place. Best practice strategies incorporate measures that are scalable across large organizations, widely and easily accessible to all staff – new and existing – able to be monitored and any gains or improvements in staff output measurable.

A best practice strategy will in turn bring about well-trained people, making better and more informed decisions. With access to information and knowledge, staff can deal with the day to day issues that otherwise might slow down the business process.

Access to even basic VAT knowledge tools will bring about a resolution to many issues thought to be ‘real’ – that is, by being able to learn more about VAT it will help to answer many of those simple questions that are ‘knowledge gap’ issues and then allow the business to focus on those areas that are the ‘real’ issues in play.

Consequences of filling the ‘knowledge gap’ can be very beneficial too – it offers the opportunity for reduced costs by reducing VAT errors and removing unnecessary non-compliance costs.