Updated: Feb 11, 2020
As organisations grow and age, inefficiencies in tax compliance activities can multiply.
Without periodic reassessment, organisations can overlook current capabilities, technological advances and extensions available within their current primary software products.
As a result, innovations can be missed and there can be inefficient human resource effort, delivery times and perhaps even ineffective investment in IT through duplication of tools with the same capabilities.
In addition to this, we now have legislation enforcing tax digitalisation of indirect tax processes over the coming year. Digitalisation is a key tool in effective innovation in both indirect and direct tax areas. This article focuses on innovation through improving digitalisation.
Tax control and analysis is a specialist area. Few accountants or Finance Directors have tax specialist knowledge or the drive to keep up with the ever changing landscape, but in terms of process innovation, in many respects it is not that different from financial control, sales/debtor control, product pricing control, supply chain management control, operational activity control, project control and overarching Executive Reporting. Experts are required in each of these areas but they are all reliant on effective data control to monitor their activities and reporting and give a single version of the organisation’s activities.
From a tax perspective, indirect tax, corporation tax and human resource tax requirements can be overlooked in the design and implementation of IT, often due to lack of relevant tax expertise in both the external software consultants and Inhouse Project Teams. This will then lead to retrospective problem-solving by the Tax Team or outsourced advisers.
In that nirvana of a closely collaborative organisation, information requirements are considered holistically.
Focus Areas for innovation
In my opinion the focus areas to encourage innovation and efficiency are:
Education – If you don’t know its capabilities, how can you use it efficiently?
Managers and employees need to be trained to understand the software systems and delivery tools that are in place.
Vision – If you can't visualise your goals, how can you move towards them?
Managers and employees need to have the individual capability to continuously think beyond current processes and delivery tools. They also need the vision to build in some flexibility for, as yet unknown, future changes in requirements and working practices.
Collaboration – If you don't work with others to realise your dream, how can you be sure that you're not destroying theirs?
Managers and employees need to embrace strategic cross-functional collaboration at both a technical and practical level, to allow each specialist area to have a basic understanding of the needs and capabilities of the others, ensuring goal alignment, encouraging coherent optimisation and avoiding unforeseen complications.
And from the tax perspective, remember that tax is not just for the year end, it is considered in every company transaction!
I have listed 3 examples below of where primary system centralisation or innovation have helped to support robust tax risk management and compliance reporting. The first two examples consider SAP ERP and SAP BW (for office) which is now being superseded and improved by SAP HANA and SAP BW on HANA. The third is an example of effective innovation to resolve the complexities of decentralised data.
SAP ERP is a phenomenal tool, capable of controlling a total organisation. In one organisation, it gave me visibility of an incredible depth of data, allowing me to drill from the final financial balances, through every area of the business to understand not just the financial numbers, but the texture of the operational activity behind those numbers. This allowed a complete and permanent audit trail to exist in one software.
SAP BW (for office) was a great data analysis and reporting tool which allowed me to minimise corporate tax compliance processing times with the security of knowing that the calculations were directly fed by the final primary system data and could be updated instantaneously in the event of any late adjustments. The optimisation was achieved by designing a single SAP BW excel which included tables exporting each group company’s profit and loss and balance sheet for a specified period, together with addition sheets for corporation tax calculations, reconciliations, journals (in upload format) and financial reporting tax notes. This reduced the time taken to run the calculations, posting, review, reconciliation and tax reporting activities for the 9 companies (in two currencies) to manhours rather than multiple mandays.
Decentralised data. I have encountered organisations where essential indirect tax relevant data held in feeder systems was not interfaced into the primary system. In this example the technical difficulty was overcome by identifying the relevant data analysis reporting tool and using that tool to create the relevant data reports. This allowed all the digitalisation requirements to be met without any additional IT resource investment by the organisation. However, perhaps a better long-term solution would be to consider reviewing all user requirements and extending the interface feeds to the primary system so all data analysis and reporting can be derived from the one primary system data warehouse, allowing the additional data analysis tool to become obsolete. (subject to legacy information considerations).
Potential activities to periodically review
To maximise Inhouse innovation and organisational IT strategy, the expert teams in each field need to continually ask themselves:
Am I monitoring and controlling the right data for my control area and is that still aligned to any changes in the organisation’s strategy and objectives and relevant regulations/legislation? What tools and data sources have I got throughout the business to support my information requirement goals (not just in current use by my Department or currently recorded in the primary software)?
Am I using my primary software’s functionality and configuration capabilities effectively? What extensions and upgraded functionality are now available to my primarily software that weren’t available during the last review? Can I improve the level of data recorded in my primary software to allow it to be used as an effective single data warehouse for more Departments (primary software is the software feeding the financial statements)? Do any primary software improvements allow me to reduce the number of products that the business needs to licence (subject to consideration of any legacy information transfer/retention issues)? Can I reduce the number of (or improve) bespoke features/reports used in the primary system, to reduce testing time for future developments and upgrades?
From a regulatory and tax perspective, can I reduce the number of bespoke systems and spreadsheets whose compliance configuration requires internal human intervention? New legislation can affect not just the indirect and direct tax rates, but also the tax treatment or income and expenses. Software, whose development is undertaken externally is likely to produce a central update to cope with any major changes within the cost of the licence, whilst indirect tax rates and treatment codes should be kept up to date within the system’s master data files with controls in place to validate their continued application.
The overall message is that curiosity and communication are key to unlocking innovation.
I hope that this article has helped encourage innovation within your organisation and leave you with one final thought.
There is always a better way no matter how far you travel or how much you improve, but sometimes you need to search for the next step and ask for a little help to take it. Occasionally it will a great leap to adapt to a fundamental shift in the landscape or the realisation of a radically better solution.
If you would like Spur Support Services to come in for a free consultation to discuss Tax Process Digitalisation and Efficiency please don’t hesitate to contact me on firstname.lastname@example.org .