Avalara, Inc., a leading provider of cloud-based tax compliance automation for businesses of all sizes, today released findings from a new survey* of 1,000 UK businesses revealing that VAT compliance remains complex and confusing for businesses to navigate as 1 April 2023 marks the 50th anniversary of UK VAT.
Complexity is costing businesses time and money
Failing to keep up with the complexity of VAT legislation and regulatory changes, nearly a quarter (24%) of the UK businesses surveyed have been audited for filing their VAT return inaccurately or late, and 20% have accidentally overpaid on their VAT return. In an attempt to temper this, nearly half (46%) of businesses are spending 10?40 hours each month on ensuring their business is VAT compliant, including checking transactions, doing VAT returns, and researching different tax laws.
A new VAT penalty regime took effect in January 2023 that assesses penalties and interest on late return submissions and payments. VAT returns will be penalised based on penalty thresholds determined by a new points system. A business will lose one point each time it delays filing a return, until it reaches the penalty threshold and receives a £200 penalty. Furthermore, businesses will also be fined £200 for each subsequent late filing.
Prior to that, on 1 November 2022, HMRC shut its legacy web portal used by businesses for filing VAT returns. With no alternative way of filing UK VAT returns outside of Making Tax Digital (MTD) compatible software, the ?soft landing' period to allow businesses to get their digital links into place came to an end. As a result, approximately 832,000** UK VAT registered businesses were at risk of hefty penalties.
April Fools' Day tax continues to trick businesses
The tax that originated on the first of April has ?fooled' UK businesses since its introduction 50 years ago. Over half (51%) of business decision-makers would struggle to confidently explain their company's VAT obligations to someone outside of the business ? highlighting the level of confusion that exists even at a senior level.
Despite the confusion, nearly a third of UK businesses (29%) are hesitant to invest in technology to help streamline their tax function and help with the calculation and reporting of VAT. Only 46% of UK businesses have invested in technology to support in the filing of VAT returns, and just 43% lean on technology to support their business in the preparation of VAT returns.
"From Jaffa Cakes to Cornish pasties, VAT has been stumping businesses for five decades. However, it really can be a simple tax, as Chancellor of the Exchequer in 1973 ? Anthony Barber ? intended it to be," said Alex Baulf, Senior Director of Global Indirect Tax at Avalara. "Complexity in calculating the right rate of VAT at the point of sale, and then preparing a VAT return are two of the main pain points businesses face, leading to increased stress, time and effort, and ultimately risk of making errors. However, by adopting technology, businesses can really streamline and automate VAT processes, reducing the risk of errors and penalties, and the headache associated with staying compliant."
"VAT shouldn't be the tail that wags the dog. Businesses should have confidence in their VAT obligations, from invoice to return, so they can instead focus on the things that matter, like growth," said Baulf.
High fines due to non-compliance are a burden businesses cannot afford to take on in the current economic climate. To help navigate their VAT obligations, the majority of business decision-makers (93%) are in favour of a movement to simplify the rules around VAT for businesses.
To learn more about the survey findings, please click here. To learn how Avalara solves VAT compliance for businesses, please visit avalara.com.
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in Brazil, Europe, and India. More information at avalara.com.
Research was conducted by Censuswide with 1,014 business decision-makers in UK businesses (aged 18+) between 17 March and 20 March 2023. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles and are members of The British Polling Council.
**According to the Institute of Chartered Accountants in England and Wales, in late October 2022, approximately 10% of businesses above the VAT threshold and 55% of businesses below it needed to sign up to MTD VAT. Avalara analysed this data, and using HMRC's Annual VAT data statistics from 2020/21, Avalara found that the 1,297,250 UK VAT registered businesses with £0 VAT registration threshold equals 713,487 businesses that are yet to register.
Avalara found that 1,184,080 UK VAT registered businesses above VAT registration threshold equals 118,408 businesses that are yet to register, meaning there is a total of approximately 831,895 businesses as of August 2022 that need to sign up for MTD and at minimum need a way of filing UK VAT return by API.
Avalara used the reported figures and applied these percentages to the latest available data (HMRC Annual VAT data statistics from 2020/21) on the number of VAT registered businesses split by below or above threshold, coming to a 33% figure. 1,297,250 UK VAT registered businesses with £0 VAT registration threshold equals 713,487 businesses. 1,184,080 UK VAT registered businesses above VAT registration threshold equals 118,408 businesses, meaning there is a total of 2,481,330 VAT registrations. With the 831,895 businesses that are yet to switch, this gave Avalara the percentage figure of 33%.
These press releases may also interest you