The tax department is surprisingly overlooked in discussions around the global trend towards the digitisation of tax authorities. Richard Sergeant explores how the tax adviser’s role will evolve.
For clarity and for forgiveness in advance, I am only a lay person when it comes to tax; however, I have often spoken to tax partners from around the world about the impact of digitisation on them and their clients as research, and with great interest.
In the previous article on why making tax even more digital is inevitable, we looked at the influence of the OECD to set a global agenda and the reporting requirements that individual jurisdictions are interpreting and implementing.
It is, however, worth recapping in a broad brush way on the role technology is playing.
Tax technology increases value of compliance
The backend technology to allow data collection and analysis is available to tax authorities, and for many countries, has been in place and evolving for some time. They are at least ‘ready’ if not fully capable.
Technology companies have had to develop compatible systems to conform to new standards and direct filing requirements - so practice tools are also ready, and in some cases like Spain are mandatory (an accountancy firm must do the filing for a business here).
The availability and roll out for compatible software to businesses has also been done relatively cheaply, although not always smoothly, and quite rapidly over a number of years. Adoption under mandation does not seem to have been a breaking point issue.
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Big data and analytic capabilities have made spotting errors and generating insight opportunities easier for practices, but also for tax authorities. And we have seen in Poland how far they are able to go to spot suspect invoices and notify the originating businesses via text and email messaging.
Compliance, therefore, has become more stringent as the data becomes more exposed - and contrary to what many have predicted over the years, has increased in value. The emphasis has become more focussed on the getting the front bit (the data collection and entry part, or accurate bookkeeping) absolutely right.
The value of compliance, therefore, is about making sure that clients are submitting the ‘right’ figures to their tax authority, and not being in a position where the tax authority knows more about their affairs than they do.
In the UK the emphasis on MTD has arguably been steered towards the accounts team - and with a focus on moving clients to functionally compatible software (or a suitable service alternative).
But relatively little has been said about, or from, the tax department.
The impact on tax teams
In the same way that auto enrolment was in fact more of a payroll thing, rather than a financial adviser thing, MTD has been much more about the accounts team rather than the tax department.
Interestingly in many discussions, the tax team can sometimes be the least informed or up to date with the practicalities. This seems to be the symptom of the emphasis given to preparing clients for process and software change, and so MTD for some is simply a practical bookkeeping, accounting or software challenge and not actually a tax one.
However, the impact on tax departments in the future will be significant.
Tax optimisation is evolving
With increased access to data by tax authorities, the role of tax optimisation (as it is often called) in countries where digitisation is more advanced, is quite possibly reducing and evolving into something else.
With tax authorities having a greater view on transactional data, the amount of optimisation work becomes increasingly limited. Tax advice and input is increasingly becoming a front-end activity for general business (not just the larger ones), ie at the operational and bookkeeping level, rather than towards the end.
Also, what we can see in places like Poland is that more tax team time is being spent on legal challenges around the figures that are being presented back to clients, and clarifying the rules.
In the early years of increased digitisation this perhaps is understandable as things bed in, but with the movement from indirect tax to personal tax and then corporation tax in the pipeline, there is likely to be a significant bedding in period of maybe 10 years or so.
Working in a digital tax environment, especially with clients working across borders, could have far reaching implications for the knowledge and technology required.
Tax departments across Europe and the rest of the world are having to contemplate owning native technologies to where their clients operate in order to file directly as government portals and paper filings are phased out; creating additional overheads and challenges when it comes to consolidation and efficient handling.
The tax department, therefore, is being asked to embrace an understanding of the broader impacts, an appreciation and use of different technology, and a shift in the services clients are now requiring.
The implications broadly seem to be panning out as:
Tax advice being incorporated into operational and financial administration conversations with general clients
- The value of compliance work increases, aided by the tax element being incorporated
- Understanding the digitisation of tax authorities and their specific technical requirements is key element for helping clients operating internationally
- Challenging returns data as a standardised service
In the UK what we might see is:
- High expectations that general tax advice is incorporated into the clients’ monthly fee, and a part of operational and bookkeeping processes
- ‘Tax optimisation’ becomes limited
- Significant time spent on challenging and clarifying HMRC generated returns
- Specialist tax work will not be immune, and practitioners will need to be highly MTD aware
While it is inaccurate to suggest that somehow tax teams are unaware of MTD, there is a significant chance that the level of disruption to their part of the profession is being underestimated or ignored.
About Richard Sergeant
Specialist insight and business development support for accountants and their vendors. Cloud advocate with a pragmatist eye.