Expense reports and VAT: how to optimise your business cash flow?

Reclaiming VAT on expense reports is a major issue for companies. Expense report management software is a powerful optimization tool available to companies. The configuration should also be adapted to the company, however, otherwise the technology will not deliver its full potential. Claudia Marie-Huet, VAT manager at Ayming, explains the importance of expense report management software and configuring them to optimise VAT recovery. 


What is your expertise at Aiming?

Ayming is a business performance consulting company focused on four areas of expertise: HR performance, innovation, operations and taxation. Our 1,300 employees in 15 countries in Europe, North America and Asia support more than 20,000 clients in their operations within the European Union and internationally.

Ayming is a VAT recovery and security specialist with four types of support: recovery of foreign VAT, EU and non-EU tax declaration management, implementation of Reliable Audit Trail documentation and VAT recovery on expense reports.


As experts, what are the main trends that you have identified in connection with VAT recovery? 

Our action mainly focuses on reclaiming foreign VAT, i.e. the VAT that a company pays in another country. The deductibility rules for this VAT may be different from those applicable in the company's country, which complicates the reclaiming process.

An important part of our customers' needs therefore concerns their requests for VAT reclaims in the Member States of the European Union but also outside the EU. We also offer support for the various local VAT returns, through which we deduct the VAT incurred on purchases. 


Have you identified specific trends in management tools for reclaiming VAT on expense reports?

Expense reports can relate to national expenses, but also European, or even worldwide costs. There are therefore several methods for reclaiming VAT that co-exist while working just on expense reports. 

Some companies have not yet adopted expense report management tools. There is a real lack since these companies have either given up on reclaiming VAT on expense reports, or they are placing an additional workload on the accounting services.

For companies that have adopted an expense report management tool, the question arises of how to configure the tool, which impacts the VAT recovery rate. If the configuration is not consistent with the expenditure policy, and especially the deductibility rules, the management tool will not allow exhaustive and secure VAT recovery. 

In addition, adopting a specialised tool does not necessarily mean that the company will make the right choice of use. For example, some companies require employees to make very detailed records of their expenses to improve VAT recovery. This is particularly the case when the software offers management that is not fully automated, and the company opts for very detailed record of expense reports. There is then a risk that employees will spend a lot of time performing an additional task that normally falls within the accountant's responsibilities. Using an expense report management tool avoids this additional workload while guaranteeing reimbursement for the employee and recovery of the VAT.


Have you noticed the emergence of new needs with the COVID crisis? How have companies handled the issue of VAT?

The health crisis linked to COVID has generated economic impacts that vary quite a lot between companies. Sectors of activity such as e-commerce or mass distribution performed fairly well in 2020 while other sectors such as the manufacture of transport equipment, accommodation and catering have suffered from this crisis. 

Overall, in terms of VAT, whether companies are in difficulty or not, accounting services have tended to refocus on their primary activities, that is to say the issuance of sales invoices first and foremost, then the management of purchase invoices and their reporting obligations, so as not to incur penalties or put themselves at risk of adjustments. Activities deemed time-consuming have been completely neglected, and reclaiming VAT is one of them. 

Expense reports have always been an important expense item for companies. With people being confined at home, companies have seen these expense items decrease. Those who did not have an expense report management tool found it difficult to manage their current expenses, because they first had to provide the supporting documents, which was very complicated with the implementation of teleworking. The financiers, for their part, had no visibility of the expenses already incurred and therefore to be reimbursed.

How can VAT help a business achieve its desired outcomes? 

Depending on the country, VAT can add 17 to 27 points to the price of a service, which is a considerable amount that it would be a shame to disregard, especially given the economic situation linked to the health crisis. 

By adopting an appropriate recovery strategy, companies can thus reduce their expense items by reclaiming VAT and therefore have an effect on their cash flow. It is one of the keys to ensuring an operational and financial performance that will allow companies to remain competitive with their counterparts. 


How can technology reduce this complexity and why is this such a big issue for companies?

While VAT functions in an apparently simple manner - reimbursement or payment of the balance between the VAT collected and the deductible VAT - the difficulty lies in the exceptions and particularities of local VAT and applicable rates. Technology will help reduce this complexity. 

To optimise VAT recovery, the company must be able to rely on good visibility of its flows in order to identify the right levers for recovery according to the applicable requirements. An expense report management tool provides real-time expense categorisation, within a defined period of time with ad hoc documentation. The software will allow the company to justify and secure the VAT. 

To achieve this, the configuration must be adapted to each company, otherwise the management will not be truly optimised. Companies can therefore turn us to find this optimal configuration in order to deploy the full power of the management tool and increase their competitiveness. 


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