Complex VAT rules are causing UK firms to lose up to 12% of their revenue, a new study by SAP Concur has found.
The company commissioned a survey of 500 UK business and finance leaders, asking them about how they are reclaiming money in the Covid-19 pandemic and the reasons preventing them from reclaiming VAT effectively.
The pandemic has created new problems when it comes to reclaiming VAT: in the midst of an already challenging tax landscape, businesses have faced a surge in remote working, deferred VAT deadlines and rapidly changing regulations, as well as employees submitting expense claims and invoices in unusual ways.
The survey – entitled ‘The Hidden Potential of VAT Reclaim’– found that almost half (47%) of finance leaders said that the pandemic has created challenges with understanding the impact of the changing VAT regulations on claims. Both business and finance leaders agree that this issue is here to stay with over half stating that increasingly complex and divergent tax regulations are the biggest challenge around managing their expenses and reclaiming VAT.
These complex regulations mean that most companies have neglected to reclaim VAT, despite its potential to boost revenue. According to the survey, this is due to:
- processes ill-suited to the submission of multi-VAT expense claims and invoices, with 25% of finance leaders saying they don’t reclaim VAT due to employees submitting expense claims with missing or incorrect information and 25% not reclaiming due to different VAT rates for items on the same expense claim;
- an inefficient use of digital tools: although 59% claim they have the digital tools in place to reclaim VAT, 53% admit they are not getting the best out of these tools;
- the complexity of processing claims and ensuring compliance: 47% of companies expect an even bleaker financial future with more frequent audits and punitive penalties for non-compliance.
Artificial intelligence (AI) was seen by many as a viable option to use to improve the VAT reclaim process. The survey found that 35% of finance leaders and 39% of business leaders believe that AI increases revenue back into the business, and 34% of finance leaders and 32% of business leaders believed it provides better data and reporting to optimise business spending. A third also believed that the use of AI could improve compliance and reduce the risk of penalties due to errors or non-compliance with regulations.
Rachel van der Merwe, director of product marketing, SAP Concur, said: “The Covid-19 pandemic has put a lot of pressure on UK businesses, with many losing revenue streams as a result of reduced operations.
“VAT reclaim is one area that can provide a real opportunity for companies to reduce business costs and boost their budgets. It can be a notoriously complex exercise for organisations, with ever-changing regulations making it difficult to ensure compliance. In addition, an onslaught of tax rebates and changing government measures amidst the crisis have further complicated the process, as well as the fallout from Brexit causing additional complexity. Too afraid of the penalties associated with non-compliance, many organisations decide not to claim back the VAT that they are entitled to.”
She added: “At a time when every penny matters to a business, this is simply unsustainable. The pandemic has stretched organisations to their limit, and it is time to take the money that is rightfully theirs to reinvest into growing their business.
“Technology can be used by organisations to take the pain out of VAT reclaim, remove risk and ensure organisations are claiming everything they are entitled to. The more digital savvy organisations are starting to take advantage of technologies such as AI to improve the VAT reclaim process. The accuracy levels provided by an AI-powered solution mean that businesses can be assured of compliance, meaning there is no longer a risk of penalties.”
- The survey was conducted by Censuswide in January/February 2021.