Human nature means many clients wait until the last possible minute before worrying about their tax return. Data released by HMRC shows 40% of tax returns are filed in January, with around 1.3 million (or 13% of the total) submitted in the final three days of the window.
While the human tendency to procrastinate will never change, can automation help accountants reduce or manage the January stampede? And can it ever reach the point where 31 January becomes just another day in the office?
There are many stages in the preparation of tax returns, and all involve human graft. Accountants send out initial requests for information, chase clients for responses, analyse and troubleshoot data, contact clients with questions or requests, manually enter the figures into the tax return, create various PDFs and send copies to the client. Finally, the accountant clicks a button and submits the tax return, and then sits watching the screen to see if it’s accepted or rejected.
But does it have to be this way? This article looks at how technology, automation and connected systems could, one day, do most of this work for you.
Here’s how the tax return process could work in the not-too-distant future.
Getting the tax data
- On 6th April your smart tax software automatically sends personalised emails to your clients requesting data for their next tax return. A link in the email takes the client to their own area within a secure web portal, where they can add and manage their financial data.
- The portal contains information from the previous year, such as bank account numbers, shareholdings and pension fund details. The client is asked to check and update this information.
- Income and payments figures are imported from third-party systems such as banks, pension fund providers etc.
- PAYE income and other data are imported from HMRC via its existing API system.
- The client runs through a wizard process to check whether any other information, such as capital gains or foreign income, needs to be included.
- Once complete, the client clicks a button to mark the data as final, at which point the accountant is instantly informed.
- Clients who have self-employment businesses complete their bookkeeping records using either specialised software or an integrated bookkeeping module.
- Once complete, the client clicks a button to mark the data as final and the accountant is informed.
- After checking the data and making any necessary adjustments, the accountant clicks a button to create the accounts.
Creating the tax return
- Reminders and nudges are sent automatically to remind clients to complete their data.
- Once all figures are finalised, the smart tax software automatically creates a tax return and imports the various figures.
- The self-employment accounts are imported (possibly from HMRC’s MTD system) into either a long or short supplementary page depending on criteria and preferences set by the accountant.
- Income or dividends from connected businesses, such as partnerships or limited companies, are automatically imported once available.
- The smart tax software checks the tax return to check whether the best tax outcome is achieved, calculating or optimising items such as foreign tax credit relief, partnership allocations and claims for capital allowances.
- Once all imports and checks have taken place, the smart tax software updates the status of the tax return and notifies the accountant.
Approval and submission
- The accountant checks the tax return for accuracy and completeness.
- The accountant adds any HMRC data not available via API feeds, such as payments already made, and makes any manual adjustments to future payments on account etc.
- A button is clicked to mark the return as complete.
- The smart tax software copies the tax return, plus related documents such as a tax calculation and any accounts, to the client’s tax portal, and sends an email or text to say the documents are ready for inspection.
- The client views the tax return and clicks a button to give formal approval.
- The smart tax software notifies the accountant that the return has been approved and automatically submits it to HMRC.
- The software displays the result of the submission to the accountant and sends notification to the client.
Technically, all the above is possible now. We can already access HMRC APIs providing PAYE and other income, and connectivity with third-party systems (such as banks etc) is likely to increase rapidly over the next two or three years.
What other developments are possible in the future? One area is artificial intelligence, with our smart tax software soon able to have a conversation direct with the client to chase them or ask for more information. I’m sure the AI bot will even make understanding noises as it’s told why the client’s data is so late, and how everything will be different next year.