Finding the meaning of VAT – putting it at the heart of your tax function

November 11, 2013


When I was a lad, the oft-repeated joke was ‘what does VAT stand for?’ – the answer being ‘Various Additions to the Total!’ (sorry, that’s as good as it gets). Recently, I’ve been thinking about this again. What is the meaning of VAT?

Well, it’s the indirect tax of choice for many governments. It’s a great revenue-raising tool – politically it’s far more palatable to tax spending than income. What I’ve been thinking about, and manfully trying to answer, is what VAT means to business? Often it’s little more than a wash-out, right? Well, not quite.

I’ve been working with a number of clients trying to help them determine what their indirect tax strategy is, or should be. The truth is the strategy depends on a range of factors:

  • What’s the business strategy?
  • What’s the scale of the business and how complex is it?
  • Where is the business going to be in five or even ten years?
  • What’s the group tax strategy?
  • What’s the risk landscape like?
  • What’s the control environment?

These are important questions. And the answers should guide your strategy for VAT and other indirect taxes. With the recent focus on control – Sarbanes Oxley, Japanese ‘SOx’, senior accounting officer regulations etc., businesses may have invested in managing VAT risks at a transactional level. My clients are at various stages of the journey.

Now it’s time to start thinking about the next step – embedding VAT awareness with the people who make the decisions to transact.

Let me paint you a picture: It’s 4.30pm on a Friday, and someone from sales rings to say they’ve got a consignment stuck at the border, not cleared and it’s got to be with the client tomorrow at 9.00am. Result – a late night for you, potential penalties, taxes and interest, delays to delivery, erosion of margin and reputational damage. Not good. Sound familiar?

But if your indirect tax strategy was closely aligned to the business, it would be influencing the behaviours of front line staff – not obsessively, but enough to make sure you’re not just managing the transactions, but managing the tax itself. Getting the strategy right gives VAT professionals a great chance to be at the heart of the business.

So, again I ask, what is the meaning of VAT? How about ‘Vital Aspect of Trade’? What do you think?

If you’d like to tell us what VAT means for your business, feel free to comment below.

Jaysson Palmer is a senior manager in our Indirect Tax team. If you’d like to find out more about the benefits of innovative management of your VAT, you can contact Jaysson at [email protected] or by phone on +44 (0) 20 7212 1890.

You can also find out more about tax strategy here.