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What Does VAT Compliance Actually Mean?

For many tax teams, the pursuit of VAT compliance is an ongoing and complex saga. VAT compliance is hard enough in one country. However, introduce the need for VAT compliance in multiple jurisdictions and then it’s easy to lose sight of what VAT compliance actually means for your business. This article deals with what VAT compliance actually means to those who are tasked with managing it. 

Happy VAT authority, happy life 

Every country’s VAT authority has local VAT laws that need to be complied with. In its simplest form, when making sales within a country, you will have VAT obligations and will need to register for VAT, declare and pay your output VAT over to that VAT authority. Most countries apply a threshold that dictates the amount in sales you must be doing in order to have to register for VAT. VAT compliance is the act of ensuring that your VAT return is filed accordingly for the period as stipulated by that VAT authority.  

The Ultimate goal is to avoid penalties 

 Ultimately, the main objective is to avoid penalties. The governing VAT authorities lay on penalties for businesses that are making sales in their country but not paying output VAT. It’s not an uncommon story for businesses unaware of their VAT obligations to be conducting business in a country for years and are unknowingly non-compliant for years. They then have to pay hefty penalties. Simply put, VAT compliance is the action of avoiding unwanted VAT penalties. 

Why is VAT compliance so technical? 

VAT compliance only becomes technical when you have multiple jurisdictions to register within and complete VAT returns. Many companies, require multiple registrations and management but have one central tax team that manage all these VAT registrations. This is where it gets complex. Every country comes with different laws and regulations that are changing constantly. This makes it very difficult to stay on top of compliance because what was compliant yesterday, may not be today. 

In addition, there is also a lot of uncertainty around when is the right time to register and what the procedure is in a foreign country. Furthermore, many countries require that you have fiscal representation in that country to successfully register for and manage your VAT. Therefore, navigating VAT – even from the starting line – is incredibly complex. 

VAT management in a digital world 

Despite the fact that VAT compliance is highly complex, there has never been an easier time to ensure 100% compliance. The development of digital platforms that automate and streamline the process has transformed a once complicated task into something that can be put on autopilot. Furthermore, the integration of VAT compliance software with existing ERP or accounting systems have made VAT compliance much easier. In fact, VAT authorities such as HMRC in the UK are demanding that tax compliance goes digital. In their Making Tax Digital regulation, the UK will only deem a VAT return complaint if it contains digital links. It’s clear to see that the manual, excel-driven process of VAT compliance is dissolving. And there is room for better, more efficient systems to take its place. We’re proud to say that our own software vfile and vsuite are helping thousands of companies to step into the digital age of VAT compliance. 

Outsourcing Your VAT Compliance 

VAT compliance is not something that has to be done inhouse. In fact, having it outsourced to experts with the right platforms and technology can set your VAT management on autopilot. Furthermore, it will save you money in the long run. It is unnecessary for any tax manager to have to memorise multiple VAT laws and regulations. Especially when A.I technology can do this for you. It is unnecessary to spend hours per month, manually compiling VAT returns and ensuring you’re compliant.

Vatglobal exists because VAT departments are realising they can use their valuable time to do more strategic things and outsource their VAT administrative processes to providers who can do it with more care and attention. 

If you’d like to explore outsourcing your VAT registration and management, speak to one of our experts today. 

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