Last week we spoke about the niche market of calculating CGT on share portfolios. We highlighted some of the complexities involved with financial instruments and the risks associated with getting tax calculations wrong.
So how do you get it right? How do you ensure that the business challenge you are facing is being solved in the right time frame, at the appropriate cost and with the appropriate risk profile?
Based on the 2014 yearly Global Outsourcing Survey Deloitte indicated that developments in enterprise mobility, big data, hosted virtual desktop, business process as a service and cloud computing would increase outsourcing. The 2016 survey tells us that cost cutting, enabling core business functions, and solving capacity issues are the primary reasons companies outsource.
Diagram sourced from: Deloitte's 2016 Global Outsourcing Survey
Deloitte notes how many of the respondents in this survey also indicated that the location of outsourced teams may become somewhat or completely irrelevant. In the past, structural and cultural challenges of outsourcing restricted its demand in the market but Deloitte identified an increase in outsourcing demand from the late 2000’s to 2014. The reason for this is said to be because companies want to improve flexibility and efficiency. This makes sense when you consider that vendors have better expertise in non-core business functions. Deloitte’s survey also indicated that Financial organisations are currently outsourcing 42% of their operations (interestingly 72% of IT work is currently outsourced). Financial outsourcing presented the highest future opportunity for outsourcing growth at a staggering 36% while Deloitte expect a 31% increase in use of outsourcing of the IT functions.
If you were to consider outsourcing capital gains tax calculations, what are the 4 more important considerations?
1) Is there value in doing this in-house?
Is this work adding value to your core business function? Is the cost saving of employing a small in-house team worth the risk of getting your compliance incorrect? Value is not the same as cost remember.
2) Is there any associated risk to getting things wrong?
In this case, yes. There are instances where companies have over-paid and under-paid their capital gains tax. There are major financial penalties associated with incorrect or inaccurate calculations. Often where one person is responsible for calculating CGT, the necessary checks and balances may not be in place to mitigate human error.
3) Is this function temporary or recurring?
If you are a financial services provider and you have many clients who have multiple share portfolios this would mean numerous reporting periods and multiple tax considerations on a regular basis. The balance of keeping an in-house tax team needs to be weighed up against the flexibility of retaining a specialist team of CGT professionals who have the ability to scale up or down when necessary.
4) What difference will an outsourced team have on your peace of mind?
The point of outsourcing is to have peace of mind that the specialist function will get done exactly as it is supposed to. Focused strategies and business processes have been put in place to ensure accurate and timeous delivery. This should enable your business to have the utmost freedom to focus on its revenue generating capabilities.
Outsourcing is growing steadily in the financial services sector which provides peace of mind for various business managers at a detailed level. People tend to think of financial institutions as a one stop shop for all functions - this is not the case. The more accurate assessment is that each financial institution has its own strength and by deviating from core business functions, you are watering down valuable resources and diminishing valuable time.
Ownership of non-core functions by third party service providers provides the ability for scale at various times, specialised knowledge, exclusive focus and attention to detail. This should give institutions a high level of confidence that a team of experts have stringently performed all the necessary checks and balances in a role that is not core to the business yet very important to execute on correctly.
One final interesting observation from the 2016 survey is that innovation is said to lower the cost of delivery by 44%. The question which is then presented is: will your in house team focus on innovation when performing non-core business functions or do they even have the skills, capacity or budget to do so?
Next week Singular unpacks the pros and cons of various Tech Procurement Models and explains which model fits your business plan best.