Artificial Intelligence allows computers to learn, process and problem solve like humans albeit at a much faster pace. AI systems are trained on huge amounts of data / information and learn to identify the patterns in it, in order carry out tasks which can range from mundane tasks to complex tasks like writing computer code.

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From an Indirect Tax perspective, this presents a huge opportunity to completely revolutionise the E2E VAT compliance and reporting, Risk and control and VAT advisory process.  

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There are many articles out there that discuss AI and its impact on the Tax function but do not detail the specific impacts on the VAT and indirect tax function. 

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Detailed below are the specific areas where AI will be able to carry out VAT related task that would normally be carried out by  humans.

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VAT Compliance

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• Review of the Purchase and Sales Ledgers and General Ledgers to ensure VAT coding is correct based on variables such as the type of supply, cost incurred, customer location, VAT Group / non VAT Group etc.

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• Identify VAT errors and automatically correct them in real time prior to the VAT return being prepared. (advanced exception reporting)

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• Extract VAT data / transactions for the VAT return, then consolidate and review for accuracy prior to submission to HMRC.

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• Review entire customer databases in billing systems to ensure that they have been set up for VAT correctly.  

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• Carry out the usual monthly or quarterly VAT Reconciliations

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• Review option to tax data and VAT incurred on property costs and apply correct VAT recovery percentages.

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• Carry out capital goods scheme adjustment calculations

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• Complete VAT Return analytical review analysis and provide trend analysis / highlight areas for further investigation

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• Prepare Partial Exemption calculations and analysis.

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• Review data used to determine VAT recovery rates such as sales, transaction count, sales credit data to identify anomalies. 

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VAT  Risk and Control

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• Carry out annual VAT risk and control assessments of entities to identify which are high, medium and low risk from a VAT error perspective.

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• Help draft VAT Risk and Control Frameworks 

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• Review customer onboarding data to identify fraud

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• Carry out Anti Money Laundering (AML) checks

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VAT  Advisory

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• Use of chatbots to provide advise on VAT related issues to internal staff

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• Review Supplier contracts to ensure they contain all the necessary detail and VAT clauses. 

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• Provide VAT advice to external clients via chatbots

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• Draft / review of Sale and Purchase Agreements (SPA) to ensure both parties do not suffer VAT losses

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• Drafting of Self Billing Agreements

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• Review of Inter-company transactions (domestic and international)to ensure they are compliant with UK, EU and Global VAT legislation.

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