Accounting software developers are less surprised than the profession about the government’s decision to phase the annual tax return out by 2020 in favour of a more automated system.
Industry figures and the trade body BASDA have already been in contact with HMRC to volunteer their support on the project.
A week on from the announcement, the detail is still sparse. According to tax lecturer - and director of Quality Management Software - Rebecca Benneyworth, we will have to wait until after the election before we see a meaningful consultation document. Jennifer Adams was told the same thing at a recent Working Together meeting.
According to Benneyworth, HMRC will be building on the existing Your Tax Account (YTA) interface. This is a sensible move, she suggested. It is not the “end of the world” for accountants, but rather something they should keep a close eye on.
Speaking in a recent Budget live panel sponsored by TaxCalc, she commented: “I know HMRC has been looking at what else it can do with YTA. It seems logical to me that one of the things they can do is enter component figures directly.
“It sounds like most agents are going to be doing what they’re doing all along, except missing out on the step of a tax return and instead getting data onto HMRC’s back end - skipping the gateway arrangements and login. One of the key things for agents is how they obtain and demonstrate client approval.”
Speculation is rife among AccountingWEB members as to how the system may look. From monthly filing to comparisons with foreign governments’ tax systems such as Australia, there has been a wide range of views shared on the site.
The initiative is of particular interest to the Business Application Software Developers Association (BASDA). Chairman Kevin Hart, also of Sage, was contacted by HMRC’s chief technology officer to ensure Sage would work closely with the Revenue to move the project along as quickly as possible.
Continuing these discussions, BASDA is meeting this week with head of HMRC’s digital services to discuss the announcement and how third party products will feed information into the digital tax accounts.
TaxCalc’s Steve Checkley, who chairs BASDA’s newly launched accountants in practice special interest group says this group will be devoted to pushing a “common agenda” between software developers and accountants when talking with HMRC.
“We’re going to need to find out what HMRC’s plans are already, it may be a case where there’s policy set or it could be more open. There’s going to be a lot of discussion and negotiation as to how this system could work. HMRC are going to be reliant upon third party software developers. They are already.
“I imagine over time it’s going to become like identity assurance. There was a lot of engagement we had with that to shape the strategy and I expect the same sort of thing to happen again. In years gone by, HMRC would say: ‘Here’s how it’s going to work’, and we would argue against it, but in more recent years, they have been a bit more open to discussion.”
BTC has also been in touch with HMRC to volunteer its support. BTC chief technology officer Rob Ellis told HMRC’s software developer support team the company be an early adopter as it saw the personal tax account as a “real opportunity to improve things” for tax agents.
And Digita says it is continuing its dialogue with the Revenue about this, too.
The heads of cloud vendors Xero and FreeAgent also told AccountingWEB they consider the project to be a good thing for both accountants and software companies themselves.
A positive for accountants
Ed Molyneux, FreeAgent chief executive, said that while the sceptics may be more vocal on AccountingWEB, this may be an overreaction.
“In reality many of our customers work through an accountant. Our customers who don’t are at the very low end of the scale and file with the HMRC themselves anyway,” he said.
“The ones who’ve been working with accountants haven’t decided to go it alone and ditch their accountant and just use FreeAgent. They’re still retaining their accountant because it’s not really the filling in the boxes bit that they’re using their accountant for. It’s the sense checking and the opportunities to save on tax and most people just want someone to give them a warm feeling about what they’re doing because it’s a big thing.”
Molyneux added that doesn’t think this spells the end of compliance for the profession: ”Clients still want an accountant to give them a professional seal of approval, to give them a sense that they haven’t made a mistake. It’s something that people worry about a lot.”
Xero’s UK managing director Gary Turner thinks accountants shouldn’t feel compromised by the decision. “There’s always been a conversation, at least for the past five or 10 years, certainly since we’ve been around, that accountants need to move away from basic compliance and into a more advisory role. If this doesn’t achieve that then I don’t know what will.
“The significant audience is the business owners and financial directors who are more likely to have more complex tax affairs. There’s no question in my mind that the role of the accountant will still be important even if the capture or collation of the data will be automated.”
Andrew Flanagan, managing director of Digita, said it is clear tax compliance software will need to be a recipient of information from and provider to HMRC’s systems, to cover the range of different situations that will exist.
“For accountants undertaking tax compliance work, it will remove some of the onerous data collection requirements and will also create a need for tax advice that is delivered in real-time. Software will pick up much more of the compliance burden and accountants will have access to much more integrated information to provide real-time and ongoing tax advice to clients.”
It needs the right tools
If the tax account project is going to work, it needs the right tools and support from HMRC. While the Revenue is meeting with software vendors and accountants alike to discuss ideas, Turner warned that the move is going to be a “significant technological challenge”.
There will need to be more integration between the other systems that people filing their returns use , whether that’s their accounting software or their bank or other investment systems.
“It’s inevitable that government is going down this route,” he added. “It is costly to capture people’s information the way it is happening at the moment and it makes logical sense for it to be automated.”
Some AccountingWEB members are concerned about the government’s track record with large tech projects, for example, RTI - which many say two years after its introduction is still flawed.
Molyneux, however, is willing to give HMRC the benefit of the doubt.
“RTI was a very serious technology undertaking. And for all the teething trouble, which I think are inevitable in undertakings of this kind, essentially it works and it took the software industry longer to get to grips with RTI than HMRC did.
“There’s such inevitability in them [HMRC] having to cut costs and increase tax take that there is no alternative other than to put more and more into automation. I think it’s a bold move – but a welcome one – to move to this much more real time style of tax reporting.
“We’ve got all the real time data, and to tie this into a cycle of annual reporting seems to be an artificiality that’s not necessary anymore because you don’t need to spend days and weeks gathering your bits of paper and sending them to your accountant to write them all down into a spreadsheet.”
It’s clear that there is much leg work to be done, and with no consultation document appearing most likely until after the May General Election, software vendors will be busy talking to and working with HMRC to figure out what the process may be behind this.