The value-added tax is one of the more common taxation frameworks used in Europe and around the world. It’s intended to create a fair, neutral, and efficient system that eliminates double taxation and ensures high prices aren’t passed on to consumers. However, the rules and regulations can be complicated, leading businesses to spend significant amounts of time and money on maintaining compliance and managing their input VAT efficiently. This is where an automated VAT recovery solution becomes useful.
Problems with the process
There are numerous problems associated with tax compliance in general. In Europe, for instance, VAT compliance takes approximately 51.4 hours annually. It’s only 8 hours per year in Switzerland, but in the Czech Republic, a business could take 108 hours.
This means that firms are dedicating resources to less productive operations, ultimately hindering their profitability.
PWC’s Paying Taxes 2018 report provides figures on the hours taken for VAT refund compliance (Page 33). Globally, it takes a firm 18.4 hours on average to comply with a refund. Needless to say, businesses lose time trying to keep up with the regulatory burden.
For more detailed statistics breaking down refund compliance by country, head to page 102 of the PWC report.
How does an automated VAT recovery solution help?
The basic answer to this question is straightforward. Due to the complexity of rules around the world, businesses fail to reclaim taxes on business expenses, especially those related to travel. A platform that doesn’t rely on manual processes does all the hard work for you. With an app like VAT4U, a business only needs to input expenses and invoices, and the application handles the tasks related to compliance using smart checks. You can even submit refund claims from the app itself, rather than relying on paper-based submissions, by logging in directly to various tax administration portals. The system will digest the appropriate data and speed up the process.
An automated VAT recovery software allows businesses to simplify the refund process so that they reclaim portions of expenses that might have otherwise been neglected. That’s not all. These platforms improve your chances of successfully recovering large claims, as the technology anticipates issues in advance, corrects them, and maintains compliance. Ultimately, a company will see its nominal profit and profit margins improve. With more than €10 billion euros being unclaimed in Europe, this is one of the most overlooked methods to improve the bottom line.
Here’s a brief breakdown of how an automated solution reduces the need for human resources, keeps up with the law, manages risk, and increases savings.
Fills the knowledge gap
The knowledge deficiency in businesses is the biggest obstacle to successful refund claims. Your firm, especially if it’s an SME, might be in a position where the taxation element is handled by someone who isn’t well-versed with the laws or is overstretched handling multiple accounting responsibilities. Either way, value-added tax recovery requires a specialist’s care and handling.
That specialist can come in the form of an automated VAT recovery software to avoid several critical mistakes.
- Applying the wrong rates of value-added tax.
- Treating business costs incorrectly.
- There are scenarios of business expenses being treated incorrectly in the accounting books. The best example is the management of entertainment costs, which are only partially reclaimable in rare situations. Opting to handle them as fully refundable expenses can result in penalties.
- Businesses also miss opportunities to identify incorrectly charged taxes by a vendor.
- Most SMEs leave tax work to the last minute right before deadlines because of its time-consuming and laborious nature. A software or online platform is not prone to this form of emotional connection, so it’s easier for businesses to complete the work earlier since AI handles the bulk of the task.
Manages international complexity
In addition to filling the knowledge gap, an automated VAT recovery solution simplifies the refund process for cross-border transactions, especially business travel. There are more than 2000 rules governing tax recovery in the EU alone. Leaving the monitoring of these regulations to people will inevitably lead to errors and mistakes. Mistakes cost money because tax authorities will impose penalties when needed and reject non-compliant claims that reduce your savings.
Consequently, a machine-learning software is a more accurate and precise mechanism to handle the refund process. Firms are capable of handling the tax burden tied to domestic transactions, but when foreign nations are involved, the landscape becomes foggy. Platforms relying on artificial intelligence clear the blurry picture.
One of the primary goals of any business is to engage in productive operations that drive revenues and profits. On the path to achieving that goal, firms get caught up with red tape and administrative measures. Complying with these rules and regulations takes time and costs money. As a result, an automated VAT recovery solution such as VAT4U becomes the perfect remedy, so that more resources can be dedicated to profit-making activities. See how our platform works and try it out for free.