Will technology terminate the traditional tax return?by
Technological initiatives like Making Tax Digital and the advent of e-invoicing have helped ignite rumours that, in the not-too-distant future, tax returns as we know them will become obsolete. However for Russell Gammon, Chief Solutions Officer at Tax Systems, the future is far more nuanced.
While it’s true that we’re currently living through a dramatic shake-up of the tax landscape, thanks to the introduction of digitalisation and other new technologies, predictions about the death of the tax return are little more than a fanciful distraction.
The reality is likely to be far more complex. Let’s look at why we should reframe the discussion and talk instead about the potential ‘death of the indirect tax return’.
The corporation tax conundrum
The complexities and reconfiguration involved in making corporation tax (CT) fully digital are significant. For a start, it will require CT and VAT to be aligned on a single platform, something that is unlikely to happen any time soon.
Secondly, the labyrinthine and constantly evolving nature of CT returns means that qualified tax professionals need to diligently wrangle the huge volume of data fields that must be completed for a CT filing – in some instances, this can be thousands of data points and different inputs for a single UK corporation tax calculation. For complex organisations, returns can take months’ worth of effort to complete.
The likelihood of all this being replaced with a ‘no return’ system that will see HMRC receiving data directly from customer networks and calculating this for themselves – including adjustments – simply isn’t a workable reality.
Instead, tax professionals should prepare themselves for additional and enhanced scrutiny from HMRC that will include a greater emphasis on the accuracy of information used to make tax calculations.
Complying with these fresh obligations means tax teams will have to maintain a laser focus on data cleansing and accuracy throughout the year, in addition to the tax return compilation and review process itself.
For the future, expect the emergence of new core technological capabilities to impact how organisations interact with tax systems and reinvigorate the tax return as we know it.
VAT and e-invoicing: The journey continues
Back to the revised assumption of the “death of the indirect tax return”. In theory, once e-invoicing becomes ubiquitous, tax authorities will gain the near real-time visibility of invoicing and payments needed to eradicate any need for businesses to perform quarterly VAT calculations.
However, UK VAT rules aren’t exactly straightforward. Added to this is the fact that today’s e-invoicing systems aren’t up to the task of handling anomalies such as partial exemptions, bike-to-work schemes and fuel rate variations.
Unless e-invoices become more sophisticated, or the VAT regime undergoes a major simplification, tax professionals will continue to labour away at quarterly return tasks.
That said, new digital tools and software are already helping to streamline the VAT process and minimise submission errors while making it harder to commit fraud. Future changes, such as the introduction of partial exemption into the digital links regime, could deliver further incremental progress in this arena.
An evolutionary reality check
In the next two decades, expect new technologies to deliver long-overdue innovation to the UK tax system and how tax professionals undertake their work.
For example, tax teams are already using AI and automation to handle repetitive data entry and categorisation tasks, so they can focus more time and effort on review, analysis and decision-making activities. In the future, cloud-based technologies will make it easier to maintain oversight and control of work undertaken on tax-related tasks undertaken by third parties and contractors.
Similarly, digitalisation will continue to impact how data is collected and submitted to HMRC. A move that will ultimately make it easier for tax authorities to interrogate and analyse data contained in tax returns and glean valuable insights.
One thing is for sure, the tax return looks set to be with us for many years to come. But as automation increasingly becomes the norm, how tax professionals handle, deal with, and submit tax returns will continue to evolve.