Tax codes are used to communicate VAT calculations and reporting between systems. But are they essential if they’re slowing down implementations, and driving-up installation and maintenance costs?
There is a lot to love about VAT Calc’s single application for global VAT and GST calculations and return filing. One feature that users appreciate is how it reduced the need for convoluted and unreliable tax code chains.
It means an end to error-prone VAT calculations and huge reconciliation headaches when it comes to trying to prepare and file VAT returns. All because our global VAT Calculator tax engine and VAT Filer returns tools are on one platform, something usually done between several different systems.
Contact us for a free trial of VAT Calculator or any other VAT Calc product. You’ll learn to love tax tech as much as we do!
Why are tax codes required for VAT calculations?
Given the complexity of some businesses, the functionality of many accounting, ERP, e-commerce or billing systems struggles with VAT determination and so businesses turn to integrations with third-party tax engines – like our VAT Calculator engine – to do this.
The tax engine will make its determination, produce a tax code (along with a rate, invoice message, etc) and pass it back to the source system, where it is mapped to that system’s native tax code, for booking. The tax code defines the transaction from a VAT perspective and is used by the filing team to help prepare the VAT return.
For businesses that also deploy VAT filing software, there is a second mapping exercise from the source system’s tax code to that filing engine’s tax code creating a chain of mapped tax codes between systems of differing levels of VAT granularity. Additionally, a mistake in the mapping somewhere in the process will could result in errors in the VAT returns.
What’s not to like about this process?
Tax and IT professionals go into heavy eye-rolling when they think about using tax codes. Here are some of the reasons why:
- They can be cumbersome to compile, and must be maintained by in-house experts or expensive consultants as the country rules change.
- Tracing them between three different systems – ERP, tax engine and VAT return software is time-consuming and prone to errors which could lead to declaration errors.
- Some ERPs – stand-up SAP! – have limited numbers of tax codes available, which creates a headache when rules change or there are sudden VAT / GST changes as we have seen with COVID-19.
How has VAT Calc simplified tax codes?
Tax codes are often used beyond just the VAT return preparation so they are a necessary evil. However, the convoluted mapping process back and forth between systems is an inefficient way of handling the defining of a VAT transaction for the purpose of filing. VAT Calc solves this problem by bringing the determination and filing process into the same engine. The VAT Calc engine simultaneously calculates what should be included on an invoice and how that transaction should be reported on a VAT return. It will still also return a tax code to the source system to be used for any other purpose too.
Contact us for a free trial of VAT Calculator or any other VAT Calc product. You’ll learn to love tax tech as much as we do!
What do tax codes look like?
Tax codes are a string of characters that are specific to a VAT transaction use case. The structure defines several pieces of VAT information, for example:
| Document | Sales / purchase invoices and credit notes, transfer documents, import documents, etc |
| Reporting country | In which country should the transaction be reported |
| Rate | Standard, reduced, zero, exempt |
| Deductibility | % deductible as input VAT against sales VAT |
How VAT Calc saves your business money and time
| The world's only single application for VAT calculation AND filing for all businesses | |
| 1. An end to costly and protracted implementations - ready to go for any business | Traditional VAT engines require a lot of manual custom rules to be created for you by tax consultants to cover the detail in the determination for your specific business model. This means months and years of frustrating and costly implementation. VAT Calc is built on the country tax laws, EU VAT Directives and global OCED guidance and so it requires only the data from the transaction to make a full and accurate calculation. This means huge time savings, reduced risk of human error and the end to expensive support and dependancy on designing and maintaining custom rules. We already have all the complexity of any use case ready-to-go out of the box: triangulation; 2021 EU ecommerce reforms; gig & sharing economy taxes; customs and warehouse exemptions and the rest of your wish list. |
| 2. Cut in-house tax research or expensive external advice | Our Calculator tool is built on all of the global tax laws - which you can modify without outside support - so every business transaction – B2B, B2C, goods or services - is already covered. You can simply modify them without IT support to your business model. |
| 3. Save on the VAT or GST returns process with world's only single calculation and returns platform | Since our VAT Calculator determination service is on the same application platform as our VAT Filer service there is no requirement for yet another system purchase, implementation and outside support. In VAT Calc invoices calculated by the Calculator can automatically post to the relevant boxes on all applicable returns in our Filer service. |
| 4. Transparent business and audit tax defence | Full details on calculations via our unique local country and EU Directive legal citation - detailing transaction type, country of taxation, exemption and any VAT registration obligations - for every transaction. Whether debating with your customers, suppliers or the tax authorities on the right invoice or return outcome, you won’t be paying too much tax anymore. |
| 5. Save staff time on Accounts Payable invoice checks | With VAT being applied by the AR or AP clerk, the in-house VAT time must spend huge amounts of their time checking the invoice’s accuracy retrospectively to avoid mis-declaration. VAT Calc returns the correct VAT treatment in real-time as the invoice is booked, freeing up the VAT team during busy filing cycles and for more strategy projects. |
| 6. Consolidate and reduce cost for multiple accounting and tax teams and business divisions | Attempting to keep track and manage VAT or GST internationally is hugely expensive and leaves the business vulnerable to errors, audits and fines. VAT Calculator enables you to centrally set the tax rules, policies and freedoms for otherwise disparate and siloed businesses within your group, and helps support remote staff with live tax automation |
| 7. Instantly spot and correct errors | Backed by VAT Calculator’s extensive automatic VAT checks, which highlight missing details which may mean an incorrect tax calculation. You can live edit these, based on VAT Calculator’s proposals from the source legislation, and ensure business processes aren’t interrupted and time lost. |
