VAT non-compliance risks severe penalties, even if it is accidental. There are a number of reasons why a business may not register for VAT, even if they have an obligation to do so.
Digital services companies and enterprise multinationals are especially at risk of VAT non-compliance. For Digital services companies, it’s very easy to supply services to customers around the world. However, keeping track of your VAT obligation in every single country in which you supply services is complex. Registering in each country in which you have a VAT obligation is more complex yet.
Multinational enterprises face a similar challenge. With offices and operations worldwide, it can become difficult to manage all registrations, compliance and filings from a centralised tax department. Tax teams may have the knowledge and know-how to manage their own local VAT returns (and even then, there are challenges) but having multiple VAT obligations in countries where language barriers exist and laws are unfamiliar is taxing on tax teams.
Ultimately, when it comes to VAT registration and compliance, businesses simply cannot afford to take chances. We explain why below.
Vat non-compliance risks severe penalties
Global tax authorities are becoming increasingly sophisticated at detecting VAT non-compliance. That puts any business that fails to register for VAT at risk of severe fines. When you consider that penalties may include interest on VAT owed, the financial penalties of VAT non-compliance can be very severe indeed. For small and medium-sized businesses in particular, the cash flow shock can be hard to bear.
It could halt business operations
In some cases, registering for VAT isn’t just about abstract compliance, it’s a precondition of doing business. For example, Online Marketplaces in the UK are legally required to ensure sellers provide a legitimate VAT number where they are obliged to be VAT registered. Failing to register for VAT could result in business discontinuity, with potentially ruinous consequences.
VAT non-compliance leads to intensive audits
Once a tax authority detects an irregularity in a company’s VAT compliance, they may elect to conduct a thorough audit. Such audits are administratively demanding, and a huge waste of potentially productive time for the business. In addition, there is the possibility that audits will reveal further irregularities, which could entail additional penalties. In addition, if tax authorities contact a company’s trading partners for further documentary evidence, the company could suffer serious reputational damage. New reports about non-compliance could further harm a company’s public image.
Claims might not be accepted
If an audit reveals a pattern of VAT non-compliance – or even if authorities cannot satisfy themselves that your invoices are valid – the tax office may no longer accept submission to reclaim input VAT. A business may even be obliged to repay reclaimed VAT, which could be financially calamitous.
A missed opportunity to claim
Failing to register for VAT when you are entitled to do so also means missing out on potential benefits. For example, a business will need to register to take advantage of VAT rebates and other advantageous VAT opportunities.
How does VAT non-compliance happen?
Why might a business neglect to register for VAT? Deliberate tax evasion could be a reason. However, there are numerous other reasons why a company may fail to register for VAT.
Most obviously, the business may simply not be aware it has an obligation to register in a given jurisdiction. Global VAT compliance is extremely complex, with different regulations pertaining to different jurisdictions. A business may enter a new marker or roll out a new product line without realising they have incurred additional VAT compliance obligations.
Secondly, a business may simply find registering for VAT in a foreign jurisdiction too administratively demanding and complex. The rules may be opaque because paperwork may need to be filed in an unfamiliar language. In such cases, a business may fail to properly comply with filing requirements or decide registration is not worth the effort.
Ensure total VAT compliance, everywhere
Vatglobal offers a technology-driven solution to ensure your business is always VAT compliant, wherever you have an obligation.
Our expert team will advise your business on all your VAT obligations and work to ensure you take advantage of all rebates and VAT opportunities.
Vatglobal’s proprietary technology automates the VAT compliance process, saving time and eliminating human error.
Contact Vatglobal now to ensure you never risk VAT non-compliance again.