Addressing tax and trade challenges in 2024

The complexity of under­standing and managing indirect taxes when doing business in the UK can be daunting. In addition to a host of ever-evolving domestic regula­tions and require­ments compli­cated by Brexit, UK businesses also need to consider challenges in complex areas such as customs and exports. Compliance becomes more difficult every year as tax author­ities increas­ingly require more infor­mation. To comply with regula­tions, both small businesses and corpo­ra­tions must meet reporting require­ments, the require­ments and complexity of which vary greatly depending on the company’s location. Even companies that operate in a limited number of locations may need to complete complex filing processes or perform signif­icant partial exemption calcu­la­tions.

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

Make Tax Digital (MTD) for VAT

Starting with updates to the HM Revenue & Customs (HMRC) Making Tax Digital (MTD) for VAT initiative in 2021 and continuing to date, businesses, other than those specif­i­cally exempt from VAT, are now affected required to register for MTD and File sales tax returns with compatible software. Penalties range from £100 to £400 for each tax return filed without compatible software, and further penalties of £5 to £15 for each day that digital records are not retained and digital links are not used.

While the new processes will initially be challenging and require changes to existing protocols, they are ultimately intended to make VAT compliance reporting simpler and more automated, elimi­nating the potential for many common errors. However, it is important for businesses to under­stand the require­ments associated with indirect tax MTD and have a system in place to respond to future changing regula­tions.

Exports

While the tax rules for exports have remained unchanged post-Brexit, there are differ­ences between intra-Community supplies (shipments) and EC exports. Previ­ously, shipments could be exempt from VAT if explicit condi­tions were met and could move freely within the single market and the EU Customs Union. Following Brexit, all shipments leaving the UK will now be subject to the previous indirect tax rules for exports.

In addition, export proof require­ments are very specific, as official and commercial proof such as landing notes or air waybills are required to complete an export.

Customs

Once a forgotten tax, tariffs are becoming a hot topic again with Brexit. Analyzing customs data is becoming increas­ingly important as companies assess their exposure and compliance accuracy. From 2022, the customs decla­ration service will be the only platform for import decla­ra­tions and soon also for export decla­ra­tions.

Customs valuation is an important part of the process and companies should ensure accuracy as compliance audit activity is expected to increase in the coming years. Analyzing the data available from HMRC can help businesses under­stand whether the correct duties have been paid and also provides oppor­tu­nities to determine whether overpaid duties may be eligible for reimbursement.

VAT exemptions

Certain goods and services are exempt from VAT. Under certain condi­tions, this can include insurance and finance, education and training, chari­table fundraising, commercial property sales and rentals, and more. If all the goods and services you sell are exempt, your business is tax exempt and you cannot register for VAT, meaning you are not entitled to a VAT refund on your business purchases or expenses. For the latest updates on the details of the rules, please visit GOV.UK.

Software for navigating turbulent waters

Using the right tax technologies and software – including tax engines that can keep up with changes and automate reporting – can lead to savings Time and money reduce the risk of errorsS, increase accuracy and provide more organized data for easier compliance. Unfor­tu­nately, investing in tax technology is rarely a priority. With a high ROI through automation of indirect taxesCompanies are able to ensure compliance, save time and money, and effec­tively avoid audits or penalties, positively impacting their bottom line.

There are key features that can be invaluable in helping you achieve ROI and reduce time to value:

• Keep up with the complexity of new indirect tax rules, e.g. E.g. “Making Tax Digital” and “Place of Supply” VAT regula­tions

• Managing tax calcu­la­tions and tax returns in multiple inter­na­tional tax juris­dic­tions

• Enables automated data collection and data import to ensure the integrity of multiple sources

• Seamlessly connect to your existing ERP, CRM, eCommerce or POS platform to ensure tax calcu­lation and compliance is consistent across your organi­zation globally

Solutions like ThomsonReuters ONESOURCE Indirect Compliance automates the way businesses manage VAT, Goods and Services Tax (GST), customs and export tracking, and other inter­na­tional tax returns, reports and regulatory filings. With a platform like this, you can go beyond complex, country-specific spread­sheets and stay compliant wherever you do business.

Summary

Often overlooked, indirect taxes can have an impact on a company’s profitability — especially when it comes to the additional costs of penalties associated with incorrect reporting or payment.It is becoming increas­ingly important for companies to conduct internal reviews of their indirect tax liabil­ities and processes to ensure accurate tax returns are filed.

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