Tech and Tax: How automation can improve efficiency

Tech and Tax: How automation can improve efficiency

Making Tax Digital seems like a huge change, but it's really about a transformation of the tax function overall

Making Tax Digital is seeing the introduction of automated reporting and submission processes but it’s really just a part of the transformation of the tax function. Going forward we can expect to see automation embraced far more widely, redefining working processes, job roles, advisor-client partnerships and the relationship with the regulator.

There are numerous pressures. From a growing barrage of regulations, demand for greater transparency and more frequent reporting from regulators to an increasingly tech savvy workforce – all fuelling the adoption of automation. Businesses need to do ‘more with less’ and so are turning to technology to automate processes and reduce the manual workload.

So what do we mean by automation? In the context of tax, we’re talking specifically about ‘compliance automation’ which enables the business to automate the end-to-end process, from the collection and management of financial data through to the creation of computations and e-filing. It isn’t just a matter of implementing a software solution to digitally file returns, however, but of looking at the compliance process as a whole, right back to the starting point: the data.

End-to-end process

Initially, it’s essential to ensure data can be cleansed and consolidated effectively. This means data integrity must be preserved by collecting it at source which typically requires integration with a variety of disparate ERP and accountancy systems.

Unfortunately, this is not what happens today. Much of this data is collected manually by tax professionals, monopolising up to 70 percent of their time. In the latest Tax Systems Customer Survey[1], 63 percent of respondents said the data collection process itself was not only arduous but made it difficult to use data for analysis due to concerns over the timeliness and the reliability of results. Data collection methods currently vary widely, from manual processes that require data to be collected and rekeyed into tax software through to partially automated solutions that use templates to gather data.

Automation of the data collection process will see accuracy improve. Tools can be used to identify and extract data from multiple systems, locations or entities, consolidate this and store the information in a common format within a data repository, together with details on the full version history and associated audit trails. The data can then be cleansed, checking for elements such as data order, description inconsistencies, consistent group information and spelling mistakes.

Once clean, the data repository can be used by multiple compliance engines to automatically populate the necessary fields, completely removing the need for transposition. This will dramatically reduce the capacity for error or tampering, thereby mitigating financial and reputational risk.

In those instances when data does need to be checked by a human, machine learning will be employed to recognise transactions and flag anomalies to tax professionals. Data will then come to be regarded as more reliable enabling the tax function to respond to and defend audits in a timely and efficient manner or to use it for data mining or analytics applications, allowing the business to derive insights that can inform decision making.

Advantages of automation

There are other benefits associated with automation, the most immediate being cost savings associated with advisors. In the Tax Systems Customer Survey, those questioned reported substantial cost savings of up to 50 percent on annual advisor spend when automating Corporation Tax processes, with almost three quarters saving more than 50 percent on advisor fees of between £15,000 and £78,000 p.a.

Automation will also give the business greater control over data. Technology will see specific tasks outsourced and other services brought back in-house, allowing advisors to focus on taking a more strategic role with clients. Similarly, inhouse tax professionals will be charged with more demanding tasks. The time previously devoted to manual data collection will instead be spent on more highly skilled tasks such as tax planning. Skillsets could also well adapt, with a greater emphasis on data analysis leading to more demand for jobs such as the ‘tax technologist’.

A major advantage often overlooked is how attractive automation is to the workforce. It appeals to technology-savvy millennials who are less likely to become bored and disillusioned, making it easier to attract and retain skilled staff. A recent ACCA survey found that 40 percent of those surveyed planned to leave their job within two years if they didn’t feel there were sufficient career opportunities. Key to avoiding this is aiding career development and the survey found 84 percent agreed technology would enable finance professionals to focus on more demanding value add activity. The survey also found that these professionals were more likely to act as technology ambassadors, spurring adoption across the business, with older employees being educated by their younger co-workers.

Automation and MTD

Because automation creates a data pool which can be used to populate multiple compliance engines it paves the way for further transformation. This then enables the business to fulfil the requirements of other taxes. It’s for this reason MTD for VAT is a trailblazer for HMRC, as it effectively sees the common processes put in place that will be required to complete returns for other more complex taxes, such as Corporation Tax.

For example, the implementation of digital links in MTDfV will see the data source – not the spreadsheet – become the primary source for computations, which will see the tax function move away from spreadsheet dependency. This was always a key priority for HMRC with MTD, with House of Commons Briefing Paper Number 7949 stating: “The methodology originally used by HMRC … assumed digital data capture, software that would use ‘nudges’ and ‘prompts’, and spreadsheets being replaced by integrated bookkeeping and reporting packages.”

In many ways, the mandatory requirements of MTDfV are just the tip of the iceberg and we should expect regulators to demand greater transparency over time. Once these processes are in place, HMRC may well choose to follow the example of regulators in Spain, Poland and Brazil which require electronic transaction data to be produced, enabling them to electronically audit the underlying data and perform data analysis. For these reasons, businesses really need to be appraising how they can implement automation rather than how they can become MTDfV compliant.

MTD is merely a catalyst for change; it’s automation that will bring about the digital transformation of the business. By equipping the tax function with the tools necessary to focus on governance, data analysis, and tax planning, and freeing employees from mundane and error prone working practices, automation promises to deliver the information tax needs efficiently and accurately, streamlining the compliance process.









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