Key risk areas
From our work with many organisations across numerous industries we have identified the below as key risk areas in relation to tax. From our recent poll, over three-quarters (77%) say they undertook a review of their reporting systems and nearly half (46%) of firms say VAT is the area of tax which is causing them most concern, followed by PAYE (32%), corporation tax (11%) and excise & duties (8%).
||Key risk areas
- Poorly managing exemption/partial exemption analyses.
- Self-billing - requiring finance, tax and legal to work together to ensure VAT coding and supporting documentation handled appropriately.
- Periodic testing of VAT determination at transactional level to identify patterns of errors.
- Reliance on out of date counterparty and transactional data in underlying accounting systems.
- Ad hoc or complex situations, e.g. termination payments, employment status and pensions.
- Share-based payments - managing the complexities of getting the tax right (in particular where internationally mobile staff are involved).
- Quality of data - managing data risk issues such as reviewing accuracy and completeness or the tax sensitisation of expenses systems, especially where key data is sourced from different systems/jurisdictions.
- Percentage based claims for Capital Allowances, and Research & Development expenditure, where the basis for the original % no longer remains valid due to changes in the business.
- Reliance on key personnel - information regarding key positions/risks not known by anyone other than the return preparer.
- Statutory accounts finalised so late that there is insufficient time available for inadequate CT return process.
- Ensuring historic positions and identified planning risks are managed and appropriately treated in the CT return.
- Reliance on freight forwarders to complete declarations.
- Lack of clarity and ownership over responsibilities.
- Failure to monitor and control compliance tasks.
- Highly administrative processes leading to manual errors.
See the Appendices for further consideration of risk areas by tax type.
Common control failings
If any of these key risk areas resonate with you, they are most likely to have crystallised due to a few common control failings. We’ve found these to be:
- Lack of appropriate documentation around processes, policies, roles and responsibilities. See Getting your documentation right for some helpful do’s and don’ts.
- Infrequent, unstructured training - both of tax and non-tax staff (e.g. Accounts Payable staff coding transactions).
- IT systems not sufficiently sensitised for tax.
- Manual processes increasing the risk of errors.
- No testing of key controls by internal audit or others.
- Lack of clear communication channels for tax within the business, finance, shared service centres etc.