Protecting Your VAT Return From (Unintended) Expense Fraud
Completing a VAT return can a challenging task. You need to find information about all your employees’ travel and entertainment expenses, and then locate the details about the amount of VAT they paid to be able to request a VAT refund. When you’re handling a foreign VAT reclaim, it’s even harder, because you need to decipher VAT invoices that are written in a different language and currency, and use different formatting rules.
All of that is time-consuming enough, but sometimes your employees make it even harder. If you need to constantly verify that your employees haven’t padded expenses, made a mistake, or even slightly altered their expenses returns, then you’re putting a lot more effort and time into your VAT reclaim process.
Expense fraud (both intended and unintended) is more common than you think
For most businesses, the easiest and fastest way of completing your VAT reclaim forms is to simply plug in data from your employees’ expense reports. Many expense management software programs record the VAT number and total VAT paid on each item, so you feel like your job is half done. This information is already in your system, so you don’t have to go combing through receipts and manually entering it into a spreadsheet.
The trouble is that you don’t know how many of those figures are actually correct. Your employees don’t know the rules and regulations about reporting for a VAT refund. They generally don’t think that it matters too much if they make a small error when recording how much they paid for their lunchtime sandwich or how much the VAT was.
And that’s just the tip of the iceberg. Expense fraud is a real phenomenon, and that chances are that’s it’s occurred in your business at some point or other. A recent study found that 18% of men aged between 18 and 35 admitted that they deliberately increased their expense claims.
The impact of expense fraud for your VAT return
Generally, these employees commit fraud by adjusting their expense reports by only small amounts – under £40 ($50) each time, often feeling that it’s just a harmless white lie. But if you’re using expense reports data to complete your VAT refund request, the size of the fraud is not your biggest problem. Your problem is that the accuracy of your VAT return depends upon the accuracy of your employees’ self-reported expenses.
Employees tend to think that expense fraud is close to a victimless crime. Nearly half say that they do it do make up for other expenses that they couldn’t submit. But when it comes to VAT reclaim, that expense fraud can come back to bite your company hard.
HMRC and tax authorities in other countries are not known for being understanding or sympathetic. If there are discrepancies or anomalies in your VAT return, it won’t make a difference if they are due to deliberate fraud on your part, a slip of the finger when typing a 9 instead of a 0, or were copied over from a fraudulent expense entry. The tax authorities are likely to flag it, and put your business through an exhausting and expensive audit. Instead of getting a VAT refund, you could end up having to pay punitive fines – all because an employee felt that they deserved an extra £10 on their expenses report.
Improving the integrity of your VAT return
To ensure that your VAT return is above suspicion, and avoid getting hoodwinked by fraudulent expenses claims, change to an automated VAT reclaim solution. An automated VAT reclaim platform like Way2Vat scans the original receipts to grab accurate information about the amount of VAT paid, and then compares that to your employees’ expense claims to check for discrepancies. It reduces your risk of facing a VAT audit, and helps you catch expense fraud at the same time.
For all the details about filing successful VAT returns in the EU and other countries around the world without suffering through a VAT audit, download our eBook.