By Anna Fedorova
One of the key areas where European governments are putting pressure on companies is taxation and invoicing, with the UK and Italy already taking steps to drive digitalization in this field.
In the UK, HM Revenue and Customs (HMRC) has embarked on the ‘making tax digital’ (MTD) campaign, which will mandate all businesses to use the government’s ‘MTD for business’ system from April 2019 to meet their VAT obligations.
There are a number of advantages to this initiative, which spans both business and individual taxation, according to HMRC.
Firstly, it will save customers time on providing the government with information it already has or can obtain from elsewhere, such as employers, banks, building societies and other government departments. Secondly, it can help prevent errors by allowing information relating to tax to be processed as close to real time as possible.
Thirdly, HMRC intends to make detailed financial information available through one digital account by 2020. Finally, new software will allow customers to interact with HMRC digitally at a convenient time.
Meanwhile, Italy is about to adopt a new law making e-invoicing obligatory for all business-to-business (B2B) and business-to-consumer (B2C) transactions from January 1, 2019.
This law will apply to all transactions performed between persons established or resident in Italy, foreign taxable persons permanently established in Italy, and Italian VAT registrations of non-established taxable persons.
E-invoicing in Italy has already been made mandatory for the public subcontract sector and supplies of petrol or diesel intended for use as motor fuel, and for tax-free shopping.
Italy is the first EU country to adopt this law, and expert say it may force other countries in the bloc to follow suit.
With these developments in mind, a number of companies are rolling out products and services to help businesses navigate the new regulatory landscape or prepare for future changes.
Recently, global invoicing company Tungsten Network expanded the scope of its invoicing services with the launch of Tungsten Network e-billing.
The new service will enable accounts receivable (AR) departments worldwide to send all of their outbound invoices through a single service provider and have them delivered in the preferred format of the recipient, whether digital, a PDF email attachment, or via a printing and postal service.
Its aim is to allow firms to remove friction from accounts payable (AP) processes through digital automation, thus improving their ability to respond to their customers’ needs.
The company has also launched a new purchase-order delivery and acknowledgement service in response to customer demand. The service will allow Tungsten Network members to digitally send purchase orders, while recipients will be able to accept, reject or amend them at their end.
Guy Miller, head of corporate development at Tungsten, says: “As fiscal pressures bite worldwide, more and more governments are trying to minimize sales tax leakage. The Italian government has become the first European country to address this by mandating e-invoicing for all domestic B2B transactions.
“E-billing services that marry compliance with digital process automation, like Tungsten Network e-billing, allow companies to meet these increasingly onerous regulatory standards, while also achieving significant process efficiencies. We think solutions like this will become increasingly popular as more countries follow Italy’s example.”
Another firm that is taking advantage of regulatory pressures is Soldo, founded in 2015 as a multi-user spending control solution, aimed at helping businesses of all sizes to manage company spending.
It offers services and products to allow companies to automate the expense-management process with a combination of Mastercard cards, a mobile app allowing employees to attach receipts and categorize payments, and a web app where financial teams can manage users and track their spending in real time.
Soldo founder and CEO Carlo Gualandri says: “There is a convergence of regulatory evolution allowing innovation in banking, as well as cloud and mobile devices allowing data input and management. All the ingredients allowing us to propose the right solutions are present at the moment.
“There are also external pressure points. HMRC is moving to digital tax returns, so it means companies must have the data in a digital format. Payments need to be electronic for electronic accounting, so this is likely to trigger a much larger adoption of services like ours. Taxes are an unmovable force that you cannot do anything against.”
However, though the pressures are there and relevant products are coming to market, uptake is still slow as companies struggle to adapt to new technologies.
For example, a recent survey by the British Chamber of Commerce (BCC) has shown that an “alarmingly high proportion of UK businesses have little or no awareness of HMRC’s flagship making tax digital project”.
The survey found that 24% of more than 1,100 businesses questioned had not heard of the initiative, and only 10% said they knew “a lot of detail” about the switch to a digitalized tax system.
As a result, the BCC is calling for HMRC to delay the introduction of the rules until the start of the 2020/21 financial year.
Mike Spicer, director of economics and research at the BCC, says: “The government’s aim to modernize the UK’s tax system is admirable, but in view of low business awareness and the impending challenges of Brexit, it would make sense for HMRC to delay the implementation of MTD in order to get this change right.
“We are concerned that far too many firms still are not clear on what MTD is, or what it means for their operations. With just months to go before the deadline, these knowledge gaps could make the timeline for change unworkable for many firms.”
A similar picture can be witnessed in Italy, according to Massimiliano Barbato, partner at EY – Financial Accounting Advisory Services, responsible for electronic-invoicing projects.
He says: “Italian companies are a little late on this topic: in July, many of them were still hoping to delay start-up. In middle-market companies, many CFOs delegated this topic to IT managers, not fully understanding the scope of change and the connected opportunities in terms of digitization and automation of processes.
“Big companies launched structured projects, in some cases with minimum goals for the starting date and an evolution path for the next months.”
He believes the rules could be a step towards rethinking a new European common framework, which could in turn make it easier for multinational companies to have business relationships all over the EU.
However, he warns firms could be losing out if they do not recognise the regulatory changes as a “unique opportunity to digitize and automate administrative processes” and if they do not make adequate investments to adapt to the new laws.