COVID-19 response: How’s VAT?

After a long period of stability where UK VAT rates have not changed, it is envisaged from this first change, that the full range of impacts from COVID-19 on business sectors and individual businesses will continue to take shape and evolve over the coming months resulting in likely changes to VAT rates.

Tax compliance is law and regulations need to be adhered to.

Latest updates from Europe and UK known to us from the UK government:

UK:

• Temporary VAT cuts from 20% to 5% will be made in the hospitality and tourism sectors
• Any VAT payments deferred between 20 March and 30 June should be paid in full on or before 31 March 2021. You can make additional payments with subsequent returns
• Germany: 21 June – temporary cuts of VAT from 19% to 16% announced
• Greece:22 June – island VAT cut announced. September delay for VAT payments. VAT cut for various products

• Czech Republic: 22 June – delays to EEA VAT cash registers announced. Accommodation and events VAT cut to 10%
• Italy: 17 Jun – announced that they are considering VAT cut. VAT payments delayed until 16 September
• Greece: 17 Jun – delays to September on some VAT payments. VAT cut for various products
• Belgium: 17 Jun – June and July VAT returns delay option being discussed. Import VAT deferments. Catering services VAT cut from 12% to 6%

Shaping your Plan

The consequences of not planning for change could be financial tax inaccuracy, financial penalty.  If unremedied, could create operational challenges around maintaining data, systems, reports and therefore a loss in trust of financial results.

In looking to shape a plan to address any forthcoming VAT changes, we recommend following the four steps mentioned below:

1. Communication: managing the change across the organisation and external business partners
2. Analysis: system configuration changes
3. Data: transition and managing pre-change data
4. Outputs: including reporting and declarations

Communication

Communication considerations are centred around needing to engage with those in your organisation and outside who are both customer and supplier of the information.  Any change requires management and thus it is important to have dialogue with the tax authorities and create a plan that ensures all is clear on change.  To not plan for change, test, control, would offer risk to the integrity of the information being recorded.

Analysis

Analysis considerations are centred around ensuring that your end to end VAT landscape is known across any Data, Process, System Configuration or application interface change.  These considerations ensure an end to plan can be executed ensuring full regression test and business as usual is assured.  End to end analysis of any change impact ensures both business and IT changes are delivered to quality and plan.

• Analyse, create where necessary new tax codes.
• Check, amend any interfaces.
• Review all applicable condition tables
• Check your Development Catalogue for any bespoke tax codes.
• Check and amend any non-integration systems such as Real Estate which uses its own rates.

Data

Data considerations are about linking where change is and as importantly where it is not as this is not always intuitive and systems such as procurement are an example (3^rd party systems too), of where an update needs managing across applications. Capturing all data changes ensures that remediation, governance over usage, and timing of making the changes is controlled.

• Check existing transactional purchasing data. Purchasing processes do not always redetermine the tax code and therefore the tax code on the invoice tab needs changing too. For purchase of services (i.e. planned services or limit purchase orders (POs)) with service entry sheets you may have to back date the conditions for the new tax codes for the audit trail.

Outputs

Output consideration items focuses on forms, reports, declarations, and understanding how important it is to get your data accurate for sending out as this data will be what HMRC use to base tax calculations, and payments.  Outputs are the outward face of the organisation and getting them right is key in planning for change.

• In case the VAT invoice text message is not copied from the tax code description but derived from standard text table, all text messages must be reviewed, and new entries must be added.
• When the VAT reporting is based on selected tax codes, variants need updating to ensure correct record to report VAT.

Next Steps

Capgemini believes that it is important to prepare and plan a call to arms to ensure the tried and tested four steps works for you.

The above four-part guide starts with stakeholder engagement towards understanding where change is required and is aimed at fixing the practical problems we are experiencing with the current VAT changes.

References: Charted Institute of Taxation

Author

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Paul Davies

UK Finance Centre of Excellence (CoE) Lead