Are you the weakest link?

Last weekend my bicycle chain broke. It was fixed quickly, because luckily I had a missing link with me. But still, it is not how I imagined the ride.

It was the second time this had happened. The first time was during my very first ride on a mountain bike. I had no idea how to maintain my bike and I didn't know that I needed to do it at all. Call it naive or inexperienced, but in any case it was not smart. Fortunately, I was riding with a friend who was prepared and had the missing link with him.

Link with your organisation

Organisations also work like this. You know the well-known saying: a chain is only as strong as its weakest link. Just like with bicycles, too much pressure on the chain can cause it to break.

In your organisation, you want to ensure that the VAT chain has no weak links.

A VAT return is based on information available in your business. There are several moments in the business process where decisions are made and where information and data are added or changed. Usually these are the following steps:

1. The ERP system contains the master data with information about the products, the customer and the warehouse locations;
2. The contract lays down the conditions and liabilities;
3. the order contains the information on the actual price, the shipping date and the place of delivery;
4. The invoice contains all this information and includes a VAT treatment based on the logic applied to all the previous steps;
5. A summary of all these data is then used as the basis for drawing up a report that is used for the VAT return.

In all these steps there can be weak links. As VAT manager, it is therefore important to understand the process and who makes VAT-relevant decisions in the organisation. And you must always be prepared to take action if one of the links breaks.

Be prepared for anything

The reason why my chain broke was that I had to change gears abruptly because there were some people walking on the road and I had to avoid them while riding uphill. This gear change and the extra pressure on the pedals caused the chain to break.

My point is that there can always be circumstances for which you are not prepared. But in your organisation, you can at least start by identifying the areas where there might be a weak link. Is your master data complete? Do your employees have sufficient knowledge? Do your invoices meet the requirements?

Is the logic of the system correct?

In the aforementioned steps, many consultants and technology companies focus on step 4. This is the step where the input from the master data and the order are combined with the logic in the ERP system. Using a decision tree, the ERP system (or an external tax engine) determines the VAT treatment of a transaction, resulting in a tax code. This tax code controls the invoice layout and VAT reporting.

In many cases, the logic in the system seems to be the weakest link. Is the logic correct? Is the information needed to make the right decision available? Is the result correct or does it need further specification?

The consultants and technology companies that focus on automation are obviously doing a good job. It makes information processing faster and decisions more efficient. But the fact remains that there are exceptions to the main rule and exceptions to these exceptions... Where technology only thinks in black or white, left or right, one or zero, implementing these exceptions can lead to draconian logic for the ERP system. Or it results in practical solutions, where the system is not used optimally, or where certain mistakes are accepted as business practice.

Look beyond the chain

Compare it to a bicycle: the ERP system is the chain that drives the machine. But it's the wheels and tyres that provide the grip. And a handlebar to determine which way you want to go.

So determining where the weak links in your organisation are does not just mean looking at the ERP system or the chain. If this looks rusty, it is of course a good idea to clean it or make sure it is well oiled. But you should also look at the other parts of your business. Who creates the contracts or orders? Who sets the prices? Who decides where goods are stored, produced or purchased?

Tips for getting the message across

I can hear you think: 'sounds logical, but how do I get that message across in my business?' No worries, here are some tips.

• Look to your CEO or CFO as the wheel. You can influence the direction by showing them where they are going. And to mark the easy or the dangerous paths through the VAT forest. Make a map of the most important VAT areas, where you think more attention should be paid. Draw up a list of incidents, examples and solutions and submit it. You are the navigation system, as well as the mechanic who gives them the information they need to move quickly and smoothly in the right direction.
• Treat the AP department like the tyres on your bicycle. Without grip, you slip. So make sure these people know how to process invoices correctly. Training, decision trees or a help desk: make sure they have the tools they need to get information into the accounts correctly.
• Do you need a bell or a lamp? Check with your legal team what the main conditions they require for purchases and sales are. In addition, see if there are some specific conditions you want to add or change to make your VAT life easier.

Know what you are doing

The last part of a great VAT ride is, of course, you. If you are liable for VAT, you need to get on that bike, pedal and go for it. But you also need to be prepared. Check the weather so you know what clothes to wear. Make sure you wear the right shoes so you don't slip off your pedals. And wear a helmet, just in case you crash.

What this simply means is that you need to know what you are doing. Keep up to date with the latest VAT news and developments. Communicate with those around you and contact people in your organisation who can help. And enlist outside help where necessary. This can vary from performing a VAT Health Check, assistance with an ERP modification or implementation, or training for you or people in your organisation.

Like my bike, your organisation may need some VAT maintenance, or a quick assessment to identify any weak spots. Let me know if you want me to help you with that.