Global business challenges of tax and trade compliance in 2024

The complexities of understanding and managing indirect taxes when doing business within the UK can be daunting. In addition to a plethora of ever-evolving domestic regulations and requirements complicated by Brexit, businesses in the UK must also consider challenges in complex areas such as customs and exports.

Compliance becomes more challenging every year with tax authorities demanding more information more frequently. To be compliant, small businesses and corporations alike are required to meet reporting obligations that have widely varying requirements and complexities depending on where the business is operating. Even companies operating in a limited number of locales can have complex filing processes or significant partial exemption calculations to perform.

Other challenges, such as the process of moving off legacy solutions and migrating to cloud-based systems (e.g. ERP) will impact businesses in the coming years. Here we will consider some of the most common questions surrounding tax and trade challenges for those doing business in the UK in 2023 and beyond.

Making Tax Digital (MTD) for VAT

Beginning with updates in 2021, to the HM Revenue & Custom’s (HMRC) Making Tax Digital (MTD) for VAT initiative, and continuing to present-day, businesses, excluding those specifically exempt, are now required to sign up for MTD and submit VAT returns using compatible software. Penalties range from £100 to £400 for each return filed without compatible software, as well as further penalties of £5 to £15 for each day that digital records aren’t held and digital links aren’t used.

While initially challenging and necessitating changes to existing protocols, the new processes are designed to ultimately make the reporting of compliance for VAT law easier and automated, eliminating the potential for many common errors. However, it’s important for businesses to understand the requirements surrounding MTD for indirect taxes, and to have a system in place to respond to changing regulations going forward.

Exports

• While tax rules surrounding exports have remained unchanged following Brexit, there are distinctions between EC intracommunity supplies (dispatches) and exports. Previously, dispatches could be zero-rated for value-added tax purposes if expressed conditions were met and could move freely within the single market and EU Customs Union. Following Brexit, all shipments leaving the UK are subject to the previous indirect export tax rules.
• Furthermore, export evidence requirements are very specific with official and commercial evidence, such as bills of lading or airway bills, required to bottom-line an export.

Customs duty

• Once a forgotten tax, customs duties are again becoming a timely topic under Brexit. Customs data analytics are becoming increasingly important, as businesses assess their exposure and accuracy of compliance. Beginning in 2022, the Customs Declaration Service became the only platform for import declarations and soon thereafter, export declarations as well.
• Customs valuation is a key component of the process, and businesses should provide accuracy, as compliance audit activity is expected to increase in the coming years. Analysing data available from the HMRC can help businesses understand if the correct duty has been paid and also provide opportunities to identify if customs duties may have been overpaid and reclaimable.

VAT exemptions

• Certain goods and services are exempt from VAT. Subject to certain conditions, these may include insurance and finance, education and training, charity fundraising events, selling, and leasing of commercial property, and more. If all the goods and services you sell are exempt, your business is exempt and you will not be able to register for VAT, which means you are ineligible to reclaim any VAT on your business purchases or expenses. The most recent updates to the specifics of the rules can be found at GOV.UK.

Software to help navigate turbulent waters

• Having the right tax technologies and software in place — including tax engines that can keep up with changes and automate reporting — can help save time and money, reduce the risk of errors, increase accuracy, and provide more organised data for easier compliance. Unfortunately, investment in tax technology is rarely a priority.  With a large ROI available through indirect tax automation, companies can ensure compliance, save time and money, and effectively avoid audits or penalties to positively impact their bottom line.

There are important features that can be invaluable in helping you realize that ROI in a shorter payback period:

• Keeping up with the complexity of new indirect tax regulations, such as Making Tax Digital and place of supply VAT rules
• Managing tax calculations and returns across multiple international tax jurisdictions
• Enabling automated data collection and import to make sure integrity from numerous sources
• Seamlessly connect to your existing ERP, CRM, e-commerce, or POS platform to make sure tax calculation and compliance are consistent across your business globally

Solutions such as Thomson-Reuters ONESOURCE Indirect Compliance automate how businesses manage value-added tax, goods and services tax (GST), customs and exports tracking, and other international tax returns, reporting and statutory filings. A platform like this lets you move beyond complex, country-specific spreadsheets to help you stay compliant wherever you do business.

Summary

Often overlooked, indirect taxes can impact a company’s profitability — especially when it comes to the added costs of penalties associated with not accurately reporting or paying.  It’s increasingly important for businesses to engage in internal reviews of their indirect tax liabilities and processes to make certain accurate returns are being filed.

A simple understanding of the landscape can help avoid many of the pitfalls and challenges of indirect taxes. The right complementary software can ensure accurate reporting and compliance to avoid costly penalties.