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Why technology is a game-changer in the tax world

26th March 2020 Print

Technology has brought sweeping transformation across all industries, from retail to insurance, sports (think VAR) to healthcare. In the tax world, it has made a massive difference to tax specialists, regulators and taxpayers.

Introducing new technology into an established business sector whose laws don’t reflect the modernisation of the past 20 years has been problematic in some ways. However, the advantages it brings far outweigh the challenges of implementing it.

Tax specialists who don’t embrace technology are likely to lose their competitive advantage, and taxpayers may find themselves falling foul of the law.

Technology and the tax specialist

Tax specialists are investing in technology such as Robotic Process Automation (RPA) and cloud storage which:

- Maximises the use and visibility of tax data

- Unlocks its strategic value with better reporting options and improves decision-making

- Uses automation to remove routine administrative tasks and reduce errors

- Provides transparent audit trails and reduces tax risk profiles for risk management purposes

With new technology comes the need for different skill sets to manage and use the technology itself and its outputs.

Technical skills are needed to support the software. High-quality customer service skills will replace low-level admin roles as staff concentrate on more complex queries. Data analytics and business intelligence expertise are required to analyse and apply the learning from data collected.

Technology and the taxpayer

Tax authorities are investing in technologies to improve how they collect tax and assess risk. To simplify the tax collection process, the Government has introduced an initiative called Making Tax Digital (MTD). It allows businesses and the self-employed to report income and expenditure to HMRC digitally and send quarterly tax returns using Government-approved software.

The software allows more intelligent reporting, giving real-time insights into a company’s financial and tax positions. Organisations can also use it to make more informed business decisions.

Digital communication channels such as email, self-service portals and web chat are replacing traditional communication methods for contacting HMRC. Technologies such as AI and machine learning are powering these channels, allowing users to complete tax tasks where and when they like.

Digitalisation and tax regulation

Digitalisation has and will continue to bring many positives to the tax world. It also has a downside – you will no doubt have seen the news stories about companies such as Amazon and Starbucks not paying tax in the UK.

Companies have traditionally had to pay taxes in countries where they trade, invest or sell assets. While one of the benefits of today's digital economy is that it allows corporations to sell their goods and services globally, it also allows for tax avoidance.

By moving their headquarters to tax havens such as the British Virgin Islands, companies can avoid paying corporation tax. According to a report by the International Monetary Fund, globally, governments lose around £400 billion annually to corporate tax shifting.

Current tax rules are around 100 years old and are not fit for purpose in today’s digital world. It no longer makes sense for tax rights to be based on a physical geographical location when profits are made globally.

Governments across the world have been looking to change the rules for the past few years. With that in mind, the Organisation for Economic Co-operation and Development has put forward a framework plan for an international agreement on digital taxation.

The framework contains new rules on where corporations should pay tax, which are mainly based on where they sell their goods and services. If agreed, it will change how and where global companies are taxed and finally bring tax regulation into the digital age.

As the world of tax changes to accommodate new laws and shifting economic and political landscapes, technology should make it simpler and easier for everyone to adapt.