Complex Regulation Means UK Businesses are Losing 12% of Revenue as a Result of Unclaimed VAT

Businesses in the UK are missing out on significant revenue by failing to reclaim VAT, according to a new study by SAP Concur. The survey, which questioned 500 UK business and finance leaders, looks at the ways businesses are recouping money in response to the COVID crisis, the reasons preventing them from reclaiming VAT effectively and the digital tools used by companies to help them better harness this hidden potential moving forward.

The pandemic has created new problems when it comes to VAT reclaim: in the midst of an already challenging tax landscape, businesses have faced a surge in remote working, deferred VAT deadlines and rapidly changing regulations, as well as employees submitting expense claims and invoices in unusual ways.

Almost half (47%) of finance leaders agree that the COVID pandemic has created challenges with understanding the impact of the changing VAT regulations on claims. Both business and finance leaders agree that this issue is here to stay: increasingly complex and divergent tax regulations are the biggest challenge around managing their expenses and reclaiming VAT (56% of finance leaders, 54% of business leaders).

These complex regulations mean that most companies have neglected to reclaim VAT, despite its potential to boost revenue. According to the survey, this is due to:

• Processes ill-suited to the submission of multi-VAT expense claims and invoices, with 25% of finance leaders saying they don’t reclaim VAT due to employees submitting expense claims with missing or incorrect information and 25% not reclaiming due to different VAT rates for items on the same expense claim
• An inefficient use of digital tools: although 59% claim they have the digital tools in place to reclaim VAT, 53% admit they aren’t getting the best out of these tools
• The complexity of processing claims and ensuring compliance: 47% of companies expect an even bleaker financial future with more frequent audits and punitive penalties for non-compliance

Artificial intelligence (AI) is seen by many as holding the key to improving the VAT reclaim process. The survey found that 35% of finance leaders and 39% of business leaders believe that AI increases revenue back into the business, and 34% of finance leaders and 32% of business leaders believe it provides better data and reporting to optimise business spending. AI is also seen as playing an important role in achieving compliance, with 33% of both finance leaders and business leaders believing that it reduces the risk of penalties due to errors or non-compliance with regulations.

Rachel van der Merwe, Director of Product Marketing, SAP Concur, explains:

“The COVID-19 pandemic has put a lot of pressure on UK businesses, with many losing revenue streams as a result of reduced operations. VAT reclaim is one area that can provide a real opportunity for companies to reduce business costs and boost their budgets. We hear a range of perspectives from business and finance leaders about tax and compliance, with many companies completely unaware of how much they can reclaim and how to do so. It can be a notoriously complex exercise for organisations, with ever-changing regulations making it difficult to ensure compliance. In addition, an onslaught of tax rebates and changing government measures amidst the COVID crisis have further complicated the process, as well as the fallout from Brexit causing additional complexity. Too afraid of the penalties associated with non-compliance, many organisations decide not to claim back the VAT that they are entitled to.

“At a time when every penny matters to a business, this is simply unsustainable. The pandemic has stretched organisations to their limit, and it is time to take the money that is rightfully theirs to reinvest into growing their business. Technology can be used by organisations to take the pain out of VAT reclaim, remove risk and ensure organisations are claiming everything they are entitled to. The more digitally-savvy organisations are starting to take advantage of technologies such as AI to improve the VAT reclaim process. The accuracy levels provided by an AI-powered solution mean that businesses can be assured of compliance, meaning there is no longer a risk of penalties. By using AI, these organisations are allowing themselves to harness the hidden potential of VAT reclaim and set themselves up for success as they plan for a world post-COVID.”