James Smith looks at why the latest tax legislation can help drive efficiencies across finance departments in the manufacturing industry
On 1 April 2019, the Making Tax Digital (MTD) regulation was brought in by the government. This means all VAT registered businesses with a taxable turnover above the VAT registration threshold, £85,000, must keep their records digitally and file VAT returns using HMRC compatible software.
Why has it been brought in?
This latest legislation is part of HMRC’s long term ambition of becoming one of the most digitally advanced tax administrators in the world. The aim is that this MTD initiative will make it more efficient, more effective and easier for businesses to get their tax right.
Currently many businesses find getting tax correct too complicated, with avoidable mistakes costing the Exchequer over £9 billion annually. Digital records will reduce the amount of tax lost to these errors and make the process easier for those dealing with VAT returns.
This is just the first step as the Government looks to change taxes over the next few years. However, MTD will not be mandated for other taxes until at least April 2020, but businesses can get involved in the Income Tax pilot now on a voluntary basis.
How do companies comply?
To comply with MTD, from 1st April 2019, mandated businesses need to keep their business records digitally. They also need to file their VAT returns via HMRC’s new digital platform by using a dedicated and compatible accounting software or a combination of software packages or spreadsheets. From April 2020, data must be exchanged digitally between all software used by a business for VAT.
With the MTD legislation, the onus is on submitting tax returns to HMRC via a company’s finance system as opposed to directly on a manual basis. More than ever, it is crucial that the data within a finance system is clean and accurate. The principle of ‘rubbish in, rubbish out’ has never been more relevant. Digital systems support the maintenance of sound management accounts by helping to ensure only clean, accurate and verified data is posted to the finance system – thereby eliminating human error and the potential for error in financial accounts and tax submissions.
Are there any benefits to manufacturers?
MTD provides a great driver for companies to assess their current financial and accounts processes and evaluate if automated systems may benefit them. This combined with more MTD legislation planned and existing regulations in place such as reporting on late payments means companies can’t afford to ignore digital solutions when it comes to accounts processes.
It’s worth looking at why traditional manual processing methods are prohibiting accounts payable (AP) teams and why digitising can bring a multitude of benefits.
The problem with paper
Despite the digital age many AP teams still use manual processes to log, validate and approve invoices. This approach is outdated and has multiple issues that cause delays, errors and waste time and money. Problem areas include spending time searching for lost or misfiled invoices, printing and physically filing the invoice and then system input time. There is also the issue of security, especially now with legislation such as GDPR making companies at risk for fines if personal data is not stored correctly.
If we take automation and the AP department we can see some real benefits to the business area.
How invoice automation can bring benefits to AP:
Automatic data extraction – This reduces the manual entry of data from documents, which in turn prevents human error, and increases the speed of the process.
Online storage – With an online document management system files are securely stored with secure access. In addition, it has user permission control that segregates duties and ensures that authorisation is given to those who need it. Files can also be accessed via smart devices to support remote working and approvals.
Greater visibility and collaboration – Automated document management provides a clearer audit trail which makes it possible for teams to view all the document activity. It also enables workers to use the latest, up-to-date version of documents, which facilitates collaboration. Reporting – An invoice automation system can provide reports on the process performance, including volumes, speeds and duration of processing. These reports are easily generated giving users fast, clear and accurate information.
Cost savings – All of the above lead to a cost saving in time allowing workers to focus on other tasks that can help drive the business forward rather than focusing on administration.
As with the points above, however, there are specific functions to address pain points in accounts.
Automatic data and duplication extraction – 85 per cent of invoice data can be automatically entered, without human intervention. This also completely eliminates duplicates from the system which can be a huge issue for accounts payable departments.
Automatic coding – For non PO based invoices, automatic coding reduces coding error and speeds up the process. For PO invoices, the matching is automatic which allows faster and more concise reconciliation of AP records.
Supplier Portal – This gives visibility of the suppliers processed invoices therefore reducing queries coming into the AP department from suppliers.
In addition to cleaner, error-free data processing, the result of all these benefits brings an end-to-end process productivity gain of a 75 per cent time saving. This is based on cost savings, redeployment of staff, recruitment avoidance and the ability to take on more work with the same staffing levels. It also enables improved workload, process and resource management and helps greatly with conformance to pay-on-time legislation in the UK.
Digital solutions now mean that approvals can be completed remotely using cloud access, and there is no longer a delay whilst the authoriser gets to their desk. And the automated system eliminates the errors associated with the human touch.
Digitising tax is only just starting but companies need to act now so that they are agile enough not just to deal with legislation change, but also to help their bottom line and productivity levels.
Using MTD is the perfect opportunity to bring huge benefits to organisations as they seek digital transformation and I urge all companies to investigate solutions that will be able to help them transition and in the future.
James Smith is Head of UK Sales at Kefron. Kefron simplifies the document and information management world for its customers. It works to understand its customers’ business processes so that it can take the pain out of paper, enabling customers to focus on what matters to them. Kefron’s team are skilled in their areas of expertise for delivering the right solution to customers.