Can you automate the VAT return? One task, scored step by step

"Can we automate the VAT return?" is a question a lot of firms are asking, and it is the wrong size of question. The VAT return is not one piece of work. It is eight or nine steps, done by different people, with very different risks attached. Some of those steps are ready for an agent today. One or two should stay with a person for a long time. The only way to tell which is which is to break the task down and score each step on its own.

This post does that for one task most finance teams know well: a VAT return for a client on regular returns. The scores are illustrative, and your own will differ. The method is the point.

The five scores

Each step gets a score from 1 to 5 on five things. Higher means more ready to hand over.

1. Frequency. How often the step runs, counted across every client. A step done once a quarter for 60 clients runs 240 times a year.
2. Rules. How rule bound it is. Could you write the decision down so that two careful people would reach the same answer?
3. Documentation. How well it is written down today, in a form someone new could follow without asking.
4. Blast radius. What breaks if it goes wrong, scored the other way round: a step whose mistakes are caught cheaply scores high, a step whose mistakes reach the tax authority scores low.
5. Rarity. How many people can do it, also scored the other way round. A step only one person can do scores low, because that know-how has not been captured anywhere an agent, or a colleague, could read it.

Rarity deserves a word. It is usually tracked as a continuity risk, which we covered in what happens to your month end close if one person quits. It matters just as much for automation. If only one person knows how a step is done, nobody can write the instructions for it, so it is not ready, however simple it looks.

Can you automate the VAT return? Step by step

Take a hypothetical bookkeeping firm preparing VAT returns for a few dozen clients. Here is how the task might break down, with an illustrative score for each step in the order frequency, rules, documentation, blast radius, rarity.

1. Confirm the books are complete for the period

Bank reconciled to the period end, purchase invoices in, sales invoices raised. Scores: 5, 4, 3, 4, 4. Mostly a checklist, and a missed item is usually caught later in the review. A good early candidate, as long as the checklist is actually written down.

2. Check VAT codes on the period's transactions

Look for transactions coded to the wrong rate, missing codes, and suppliers who changed their VAT status. Scores: 5, 4, 3, 3, 3. High volume and mostly rule bound. Exactly the kind of step where an agent can draft a list of suspect items for a person to confirm.

3. Handle the unusual items

Reverse charge, imports, partial exemption, capital items, anything a junior would ask about. Scores: 3, 2, 2, 2, 1. Judgement, rare cases, and often one person in the firm who really knows. This step stays with a person, and the first job is not automation. It is getting that knowledge out of one head and onto the page.

4. Reconcile the VAT control account to the return

Does the balance on the ledger agree with the figures the software is about to submit? Scores: 5, 5, 3, 3, 4. Highly rule bound. An agent can prepare the reconciliation and flag differences. A person reviews it.

5. Compare with prior periods and explain variances

Why is output VAT up 40 percent on last quarter? Scores: 5, 3, 2, 3, 3. An agent can calculate the variances and draft the questions. Explaining them still needs someone who knows the client.

6. Send to the client for approval

Scores: 5, 4, 4, 4, 5. A routine email with a summary attached. Easy to draft, but it goes out under the firm's name, so a person sends it at first.

7. Submit the return

Scores: 5, 5, 4, 1, 4. Mechanically simple, usually a button in the software. The blast radius is the problem: a wrong figure has gone to HMRC. This step is the last to be handed over, if it ever is, and only after the steps before it have a long, clean record.

8. Record the liability and set the payment reminder

Scores: 5, 5, 3, 4, 4. Rule bound housekeeping. Ready early.

What the scores tell you

Read across the steps and three groups appear.

• Ready to draft now. Steps 1, 2, 4 and 8. Frequent, rule bound, and mistakes are caught before they matter. These are where an agent starts, producing drafts a person checks, the first rung of the ladder in drafts first, trust later.
• Ready to assist. Steps 5 and 6. An agent can do the arithmetic or the first draft, but a person owns the result.
• Not ready. Steps 3 and 7. Step 3 because the knowledge sits with too few people. Step 7 because of what happens when it goes wrong.

Notice what is not holding most steps back. It is rarely the rules, and it is rarely the technology. It is the documentation score. Steps 1, 2 and 4 score 3 on documentation in this example, which in practice means "written down somewhere, roughly, and probably out of date". Raise those to 5 and they are ready. That is a month of writing, not an AI project.

Why scoring the steps beats scoring the task

Score the VAT return as one task and you get an average that helps nobody. It comes out somewhere in the middle, and the conversation turns into "is AI ready for VAT or not", which nobody can answer.

Score the steps and the conversation changes. The person who prepares the returns can see that the coding check and the reconciliation are the steps being handed over first, and that the parts needing their judgement are staying with them. The boring half of the job goes first. The firm can see that its real exposure is step 3, where the know-how lives in one head, and that fixing that is useful whether or not an agent ever touches it.

Scoring every recurring task this way, from the work people already do, is what we are designing Beaks to do. A spreadsheet with five columns will get you most of the way for one task.

One thing to do this week

Pick one recurring task your team runs for many clients. Sit with the person who does it and list the steps in the order they actually happen, not the order the manual says. Score each step 1 to 5 on frequency, rules, documentation, blast radius and rarity. Then look only at the documentation column. Any step that scores well everywhere else and low there is your writing job for next month.