The document discusses the importance of VAT considerations in accounting system implementations and upgrades, emphasizing the need for VAT automation early in the project to ensure proper treatment of transactions. It highlights common pitfalls in VAT determination processes and the opportunities for streamlining and minimizing errors during VAT reporting. BDO offers assistance in mapping VAT processes, identifying issues, and implementing both in-system and off-system solutions to comply with VAT law and improve efficiency.

1. VAT: A NEW / UPGRADED
ACCOUNTING SYSTEM
The need for VAT considerations during a system
implementation/upgrade
VAT is a transaction-based tax with VAT treatment
determined by the specific facts of a transaction. In
most cases, VAT is ideally placed for automation and
can be successfully integrated into an accounting
system environment – but only where VAT forms an
integral component of the system implementation
project and is considered early on in the project.
From our discussions with businesses across a wide
range of sectors, we understand that they would
prefer VAT determination to be as automated as
possible – this is because they often do not have the
time to review each transaction to ensure that the
correct VAT treatment is being applied.
Depending upon the nature of your business, it is
likely that VAT determination for the majority of
transactions can be automated. This can produce
significant time savings and deliver a larger return on
your investment in your new/upgraded system.
Regardless of whether you are upgrading your current
accounting system or implementing a new one, it is
likely that you will need to make system changes in
relation to VAT because of:
 the arrival of Making Tax Digital for VAT on 1 April
2019, where ‘time of supply’ and correct tax code
classification of income and expenditure will
come under closer scrutiny
 the changes potentially posed by Brexit, eg loss of
EU VAT simplifications such as ‘triangulation’ for
UK businesses, changes to existing supply chains
and the need for new accounting system tax codes
to cope with post-Brexit transactions.
Typical pitfalls
Whilst there is an opportunity to embed VAT
determination logic into workflows that are being
developed as part of system implementation /
upgrade projects, in our experience, VAT is often
an afterthought that requires ‘off-system’
workarounds to correct ‘in-system’ deficiencies.
This usually leads to:
 insufficient granularity for VAT reporting
purposes, ie not enough tax codes to accurately
split out the Box 6 amount between standard-
rated, zero-rated, reduced-rated, exempt and
‘outside the scope of UK VAT’ supplies
 gaps in workflows which give rise to incorrect
or lengthy VAT determination processes that
could have been avoided, eg time of supply
recorded as the invoice posting/issue date
instead of the goods received/dispatched date
 inadequate system-generated VAT reports that
require significant processing as part of the VAT
return preparation process
 inefficient VAT return processes requiring
significant amounts of time to produce VAT
returns
 sub-optimal internal controls for VAT
accounting/invoicing/reporting purposes.
Implementing a new accounting system or upgrading an existing system presents the following
opportunities:
 Streamline VAT accounting/invoicing/reporting and reduce man hours spent by staff on these tasks
 Minimise the risk of VAT errors/anomalies that take up valuable staff time to resolve and might lead
to HMRC penalties, customer payment issues due to disputed invoices, etc
 Change VAT accounting processes, tax codes, etc to comply with changes in the VAT treatment of
transactions due to (i) Brexit and (ii) the new VAT record-keeping requirements under MTD for VAT
 Implement new Customs reliefs/authorisations, eg Customs Warehousing, AEO, etc
BDO can help you to crystallise these opportunities by acting as a bridge between your Finance/Tax/IT
teams and the external consultants implementing/upgrading your accounting system

2. This publication has been carefully prepared, but it has been written in general terms and should be seen as containing broad statements only.
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contained in this publication without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your
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Copyright © November 2018 BDO LLP. All rights reserved. Published in the UK.
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How BDO can assist you
 End-to-end VAT determination and VAT return preparation process mapping so that you have an
overview of where the current gaps are in the VAT determination logic/VAT return preparation
process and what improvements are required, including streamlining of processes.
 Identify and highlight any issues with the current VAT determination (ie VAT treatment of sales
invoices) and VAT return preparation process and recommend improvements where necessary.
 Act as an interface between Finance/Tax/IT teams and system implementers to ensure correct
implementation of VAT recommendations.
 Where the recommendations cannot be implemented ‘in-system’, we can implement robust ‘off-
system’ workarounds for you that ensure that VAT determination/accounting remains in line with
VAT law requirements; or you can prepare these yourself and we can review your ‘off-system’
workarounds to ensure they are in-line with VAT law and then provide you with recommendations
on ways to reduce the time taken up by VAT compliance whilst strengthening your VAT controls and
procedures through ‘automation’.
MARK ELLIS
PARTNER
Indirect Tax
m: +44 (0)781 362 9444
e: mark.l.ellis@bdo.co.uk
AMIT DEV
TAX TECHNOLOGY LEAD
Indirect Tax
m: +44 (0)121 352 6346
e: amit.dev@bdo.co.uk