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Will technology terminate the traditional tax return?


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.

9th Jan 2024
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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.

Replies (9)

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By FactChecker
09th Jan 2024 16:25

"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."
And yet there are still those (in back-rooms at the Treasury) who rue the day that the concept of Centralised Deductions was converted into the reality of RTI ... and are plotting its resurrection!

The basic problem that no-one (in Govt, Treasury or HMRC) has recognised is that:
* the best use of technology is never achieved when it attempts to replicate pre-digital processes.

I would go further ... in addition to being prepared to 'tear it all up and start over again' (you can retain the same objectives, if appropriate, without unduly constraining how those are achieved) - there should be recognition from the start that technology will work best when the rules it must follow are made as simple as possible.

All the historical evidence (and indeed the 'forecasts' made in the above article) suggest that the decision-makers see technology as having the power to deal with ever more complex scenarios and rules - and so blithely tweak away, 'safe' in the knowledge that technology *can* support this.

What seems to continuously escape their notice is that, like any system (mechanical or digital), the degree of robustness is dependent on the weakest link - however infrequently encountered.

HMRC's ability to claim that 95% (or even 99%) of submissions are processed without problem is redolent of how the P.O. came to believe in (aka convince themselves of) the infallibility of Horizon.

Can you imagine - to take one simple example - if the same 'tiny' percentage of RTI returns that HMRC converts into fictitious data on their databases ... was directly impacting the pay packets of the employees on those returns. There wouldn't be time to make a TV programme before full-scale rioting broke out!

Thanks (2)
By Open all hours
09th Jan 2024 19:55

Yes. When privacy is finally killed off. When the state knows where you are, who you’re with, what you spend and where and why. We’re heading that way.

Thanks (0)
By GHarr497688
09th Jan 2024 20:01

Horizon Post Office Scandal !!

Thanks (1)
By Tornado
09th Jan 2024 23:07

I sometimes look at the Antiques Road Trip or Bargain Hunt and I am always amused at the use of cash for every transaction and no visible receipt. There must be some digital bookkeeping and stock control, but perhaps not.

This is such a long way away from the fantasies of those that are obsessed with techology and that it will take over the world and we will be using it for everything. They have lost sight of reality and the way that people like to work and live ............... in short, they have forgotten that we are people and we don't automatically like computers or AI doing everything for us. We need to do things the long way sometimes otherwise there will be no point or pleasure in existing.

Thanks (4)
Replying to Tornado:
Ivor Windybottom
By Ivor Windybottom
10th Jan 2024 12:41

LOL. Watching Antiques Road Trip and Bargin Hunt and then complaining about the pointlessness of existing!

The use of cash is so tempting for frauds. I wonder if all those antique sellers receiving cash fully account for all their takings, or if some finds its way into their "other pocket"?

Even Homes Under the Hammer has to say "profit of £Xk, before tax", so they have been picked up on the fraud risks of failing to declare trading receipts. Mind you now all the auctions are online the programme has lost some of its charm.

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Mark R
By oneclickapplications
10th Jan 2024 10:27

Many companies like ours are already looking at developments with MTD and what that will mean for all Tax. revenues This has already started.

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Replying to oneclickapplications:
By AdamJones82
10th Jan 2024 16:41

What developments? It's years since it was announced and it's still no nearer to happening.

Thanks (2)
By rmillaree
11th Jan 2024 11:02

vat office should have put e invoicing ahead of mtd for vat - its ridiculous asking peeps to keep digital records if they cant easily grab digital tax invoices fom large suppliers. They could have started this with larger businesses yonks ago. A simple tap like your co-op club card should suffice that the customer gets vat invoice direct to a digital inbox.

Thanks (1)
By Brodders
11th Jan 2024 12:54

I have had the privilege to talk to Russell during my day job once. I simply wish he was in charge of government approach to the digital strategy - he would do a fantastic job.

Some stuff you read and think "hmmm, vested interest...bias" etc. Russell is one of the few people i would always read and trust.

Thanks (1)