Finance
Avoiding the costs and consequences of the updated VAT penalty regime
Published
5 months agoon
By
admin
By Russell Gammon, Chief Solutions Officer at Tax Systems
HMRC is buckling down on the way it has been handling corporate compliance to ensure organisations get their tax right the first time. Now considering Making Tax Digital (MTD) business as usual, HMRC has introduced an updated points-based VAT penalty system, which commenced on 1st January 2023. This means tax leaders and their teams must re-evaluate MTD and make new critical compliance checks to satisfy regulations and swerve more stringent penalties.
What’s new?
In May 2022, HMRC published guidance setting out the key compliance checks VAT-registered businesses need to be aware of to avoid penalties for MTD for VAT. The key drivers for this tougher approach are to reduce the tax gap and prevent non-compliant outcomes, as HMRC figures illustrate how MTD has reduced the so-called tax gap for VAT to date – in 2022, the VAT tax gap fell from 8.5% to 7% which equates to a considerable additional tax take.
And HMRC now considers MTD for VAT a ‘business as usual’ process. The new enforcement approach in 2023 is designed to deliver accuracy in VAT calculations and submissions. This means organisations must be aware of three key areas – the new penalty types, the costs and consequences of submission errors and defaults and, critically, the role of technology in simplifying and decreasing risk on businesses’ tax returns.
- The two penalty types: default and behavioural

Russell Gammon
One key theme in the penalty system is that HMRC will evaluate the behaviours behind any VAT compliance failure in addition to penalties for defaulting on mandatory requirements, such as deadlines for VAT submissions and payments. HMRC cites the most significant behaviour contributing to the tax gap as failing to take reasonable care (19%), with criminal attacks, evasion and legal interpretation in complex transactions each accounting for between 15% to 17%.
The updates to the penalty regime aim to drive up more reliable and accurate VAT returns by applying default behavioural penalties, relevant to the MTD for VAT requirements, that will incentivise firms to exercise due care and attention when reporting and calculating their VAT liabilities. For example, businesses not holding digital records, or following the digital links rules, are liable to pay if found out. It’s a move designed to cut reporting errors and re-submissions, streamline HMRC’s tax administration efforts and reduce the tax gap yet further.
Organisations will need to assess the implications of these non-negotiable new compliance requirements for the systems and processes currently being used to manage VAT reporting.
- Penalties and requirements
From 2023, organisations will be required to file returns using digitally compatible software that can record and store digital records and exchange information to and from HMRC. The penalty for failing to do this is a flat £400 fine per return.
Ways of showing tax calculations will also be critical. Organisations must maintain detailed electronic records for all VAT-related transactions. Compliance failure will result in a £15 daily penalty. Specifically, digital links must be used to transfer data between software programmes, applications or products.
HMRC also stipulates each organisation’s software must have a checking function built in to ensure the accuracy of data in tax returns upon filing. Returning a file with errors could see a fine of up to 100% of any VAT owed.
The upgrade in compliance requirements sees HMRC addressing behaviours that lead to tax return errors. For instance, HMRC will apply fines according to lack of care, which is punishable by a fine of up to 30% of VAT owed, while a deliberate error will incur a fine of 70%. Worse still, a deliberate and concealed error will result in a business being fined an additional 100% of VAT.
Implications for businesses
The changes may seem minor, with many perhaps not considering £15 per day a high cost, but multiple compliance failures can see costs quickly rack up, especially if backdated over multiple submission periods.
Corporate groups in particular run the risk of penalties relating to multiple VAT registrations, as they claim multiple VAT rates – a compliance error within one VAT registration is replicated wherever the same processes are utilised. For example, the Box 6 split can prove particularly challenging to accurately record and report.
Businesses must start as they mean to go on with new compliance etiquette. Once a VAT compliance failure has put an organisation on HMRC’s radar, it’s likely to be under more intense scrutiny. HMRC inspectors will be checking that a compliance failure resulting from a lack of due care and attention isn’t an indicator of something more – a deliberate error or act of concealment.
Why software matters
Organisations should act now to ensure they minimise non-compliance risks, utilising solutions that offer robust checking functions to ensure returns are correct before filing. The requirement to demonstrate the use of software checks means that inspectors will request evidence that these have been applied. From an HMRC perspective, not using the checking functions contained within commercially available software will act as a red flag that there are potentially negative behaviours motivating this compliance failure.
To ensure tax returns are right the first time, specialist VAT solutions feature automated digital checks on the key elements highlighted by HMRC as being the most prone to error. The most common include VAT on business entertaining, intra-group transactions, passenger transport and leased car expenditure. Some software even enables organisations to configure checks for their own specific data sets, processes and business operations.
To prevent potential fines and avoid the scrutiny of HMRC, compliance must be a priority for businesses in 2023. Adopting specialist tax software should be part of a mindset shift in tax teams to a more strategic value-based approach to tax. Only this will truly avoid penalties for MTD for VAT and keep their business at one with its expenditure.
Finance
Taxing times for online marketplaces? Operators must act now to avoid losing sellers
Published
2 hours agoon
June 9, 2023By
admin
By Niall Kiernan, Senior Director of Product Marketing, Vertex
In today’s digital landscape, online marketplaces are an enabler for many businesses to achieve their growth ambitions. From Amazon to eBay, Etsy to Vinted, businesses of all sizes are now utilising online marketplaces, and recent years has seen exponential growth in this area. Numerous factors, including the proliferation of mobile devices and widespread availability of high-speed internet, have resulted in this escalation. Combined with consumer demand for convenience, along with the impact of the pandemic, the success of online marketplaces can be seen in the numbers. In 2021, retail eCommerce sales amounted to approximately US$ 5.2 trillion worldwide. This figure is forecast to reach US$8.1 trillion dollars by 2026.
It is clear that online marketplaces are a vital source for businesses to continue to flourish but there are still major roadblocks which can hinder a business’ efforts to capitalise on the booming sector. According to research commissioned by Vertex, which surveyed 479 finance professionals globally, seven out of ten sellers using marketplaces to trade online believe that indirect tax challenges could deter them from using them again in the future.
The complexity of ensuring a frictionless eCommerce experience
Whilst over half of respondents in the survey agreed that marketplaces are getting easier to use as a sales channel, ensuring that both operators and sellers can enjoy a frictionless experience is one of the biggest challenges in the space. Respondents indicated that they are looking for more support and guidance on issues including: how to ensure transactions and the transfer of money can be more seamless (65%), tax liabilities (64%), and compliant invoicing (63%). But what are some of the specific roadblocks both marketplace operators and sellers are experiencing?
- The cross-border trade conundrum
85% of marketplace operators surveyed indicated that they are looking to increase their seller base, however there are numerous tax complications when trade crosses borders. Four out of seven operators stated they have struggled to manage tax liabilities and tax complexities around seller shipping locations. Online marketplaces are very much a global affair, with cross-border transactions being the norm.
The difficulty here is that both operators and sellers must comply with the different tax regimes of the countries they operate in, which can be a complex and burdensome process. Seller respondents reported a wide range of issues when they sell through marketplaces, including balancing their tax liabilities and knowing where and when they are liable for tax.
- Complexities in every step of a transaction
Dig beneath the surface and the process of a transaction is much more complex than initially meets the eye. From listing fees to shipping and handling charges, or the previously mentioned cross-border trade complexities, every step in the transaction process brings multiple challenges to both the operators and sellers themselves.
45% of sellers surveyed want their marketplace operators to improve the process of finance and tax automation to overcome these barriers, but of the operators, only 56% manage all tax liabilities on their seller’s behalf. If marketplace operators want to ensure they have a healthy population of sellers, this figure needs to increase.
Tax technology for a trouble-free tomorrow
Although there are clear and significant indirect tax challenges for online marketplaces, the space remains an attractive channel for businesses to achieve their growth ambitions. 81% of businesses are taking advantage of online marketplaces to attract new customers and sell into more countries and upon further inspection, they attribute this expansion into marketplaces to reach a wider geographical market (57%), to being more competitive (50%) and to tap into cross-border sales opportunities (48%). It’s clear that sellers are wanting to utilise online marketplaces to expand their customer base globally and if operators want to increase their seller base and take advantage of the growing demand for this, and 85% of those surveyed do, then they need to ensure that their platforms offer a seamless experience for their sellers.
By investing in an end to end tax management solution which can handle all types of indirect tax requirements, you will be able to support sellers on their own individual growth journeys. In addition, you can rest assured that it will also enable them to feel confident that their chosen platforms can meet all the indirect tax requirements as they increase their cross-border sales.
To learn more about the taxing times for the marketplace and seller relationship, download the latest report by Vertex.
Business
Unlocking the Power of Data: Revolutionising Business Success in the Financial Services Sector
Published
18 hours agoon
June 8, 2023By
admin
Suki Dhuphar, Head of EMEA, Tamr
The financial services (FS) sector operates within an immensely data-abundant landscape. But it’s well-known that many organisations in the sector struggle to make data-driven decisions because they lack access to the right data to make decisions at the right time.
As the sector strives for a data-driven approach, companies focus on democratising data, granting non-technical users the ability to work with and leverage data for informed decision-making. However, dirty data, riddled with errors and inconsistencies, can lead to flawed analytics and decision-making. Siloed data across departments like Marketing, Sales, Operations, or R&D exacerbates this issue. Breaking down these barriers is essential for effective data democratisation and achieving accurate insights for decision-making.
An antidote to dirty, disconnected data
Overcoming the challenges presented by dirty, disconnected data is not a new problem. But, there are new solutions – such as shifting strategies to focus on data products – which are proven to deliver great results. But, what is a data product?
Data products are high-quality, accessible datasets that organisations use to solve business challenges. Data products are comprehensive, clean, and continuously updated. They make data tangible to serve specific purposes defined by consumers and provide value because they are easy to find and use. For example, an investment firm can benefit from data products to gain insights into market trends and attract more capital. These offer a scalable solution for connecting alternative data sources, providing accurate and continuously updated views of portfolio companies. Using machine learning (ML) based technology enables the data product to adapt to new data sources, giving a firm’s partners confidence in their investment decisions.

Suki Dhuphar
But, before companies can reap the benefits of data products, the development of a robust data product strategy is a must.
Where to begin?
Prior to embarking on a data product strategy, it is imperative to establish clear-cut objectives that align with your organisation’s overarching business goals. Taking an incremental approach enables you to make a real impact against a specific objective – such as streamlining operations to enhance cost efficiency or reshaping business portfolios to drive growth – by starting with a more manageable goal and then building upon it as the use case is proved. For companies that find themselves uncertain about where to begin their move to data products, tackling your customer data is a good place to start for some quick wins to increase the success of the customer experience programmes.
Getting a good grasp on data
Once an objective is in place, it’s time for an organisation to assess its capabilities for executing the data product strategy. To do this, you need to dig into the nitty-gritty details like where the data is, how accurate and complete it is, how often it gets updated, and how well it’s integrated across different departments. This will give a solid grasp of the actual quality of the data and help allocate resources more efficiently. At this stage, you should also think about which stakeholders from across the business from leadership to IT will need to be involved in the process and how.
Once that’s covered, you can start putting together a skilled team and assigning responsibilities to kick-off the creation and management of a comprehensive data platform that spans all relevant departments. This process also helps spot any gaps early on, so you can focus on targeted initiatives.
Identifying the problem you will solve
Now let’s move on to the next step in our data product strategy. Here we need to identify a specific problem or challenge that is commonly faced in your organisation. It’s likely that leaders in different departments, like R&D or procurement, encounter obstacles that hinder their objectives that could be overcome with better insight and information. By defining a clear use case, you will build a real solution to a challenge they are facing rather than a data product for the sake of having data. This will be an impactful case study for your entire organisation to understand the potential benefits of data products and increase appetite for future projects.
Getting buy-in from the business
Once you have identified the problem you want to solve, you need to secure the funding, support, and resources to move the project ahead. To do that, you must present a practical roadmap that shows how you will quickly deliver value. You should also showcase how to improve it over time once the initial use case is proven.
The plan should map how you will measure success effectively with specific indicators (such as KPIs) that are closely tied to business goals. These indicators will give you a benchmark of what success looks like so you can clearly show when you’ve delivered it.
Getting the most out of your data product
Once you’ve got the green light – and the funds – it’s time to put your plan into action by creating a basic version of your data product, also known as a minimum viable data product (MVDP). By starting small and gradually enhancing with each new release you are putting yourself in the best stead to encourage adoption and also (coming back to our iterative approach) help you secure more resources and funding down the line.
To make the most of your data product, it’s essential to tap into the knowledge and experience of business partners as they know how to make the most of the data product and integrate it into existing workflows. Additionally, collecting feedback and using it to improve future releases will bring even more value to end users in the business and, in turn, your customers.
Unlocking the power of data (products)
It’s crucial for companies in FS to make the most of the huge amount of data they have at their disposal. It simply doesn’t make sense to leave this data tapped and not use it to solve real challenges for end users in the business and, in turn, improve the customer experience! By adopting effective strategies for data products, FS organisations can start to maximise the incredible value of their data.
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