Digitalisation of the tax process should be about so much more than just complying with HMRC’s MTD mandate for organisations to create a digitally linked, end-to-end tax process. It’s about condensing the time spent on manual element of the process, freeing up skilled resource to focus on reviews which are often rushed in a bid to meet filing deadlines. It’s about using technology to automatically check data integrity and flag issues for investigation, reducing the risk of error. And it’s about making sure your return isn’t just on time but is right first time.
None of these things, strictly speaking, are directly covered by Making Tax Digital but the mandates have focused attention on tax technology and are helping many organisations build the an argument to start investing in their digital processes starting with VAT. In many respects tax teams have lagged behind other areas of finance when it comes to digital transformation, but MTD now provides an opportune time to look at how processes can be brought up to speed.
The reason for this is that MTD for VAT is just the first stage of of HMRC’s ambitious plan to digitally overhaul the tax regime. In its 10 year modernisation plan, the tax authority outlines how it will create a single, digital account for all taxes and “introduce increasingly integrated processes, drawing on information from business systems and validated third parties”. These processes will also capture information “enabling real-time risk assessment” that will “support targeted interventions to prevent unintentional errors much earlier in the process”. This will help to address the problem of the “failure to take reasonable care” - a major contributor to the tax gap that currently stands at £31bn.
The good news is that many tax teams now regard HMRC’s digital strategy as the justification they need to help them build out the tax function and embrace digitalisation not just in the short term, to meet compliance demands, but also in the longer term, to enable their businesses to capitalise on accuracy and efficiency gains.
So, what are the advantages of digitalising your tax process? Tax Systems learnings to date include:
- Reduce compliance workloads – Over 80% of the time spent on tax returns is dedicated to collecting data and ensuring spreadsheet integrity. Automating the process sees tax data captured directly from accountancy systems which is then fed through to the proprietary software potentially saving hundreds of hours of effort
- Remove spreadsheet risks – Spreadsheets are notoriously error prone because they rely on formulas and macros being applied correctly and manual adjustments being properly tracked. Compliance software does not use spreadsheets, so there is no need to check whether the formulas and macros are working.
- Free up more time for review – A digitalised process is more streamlined so typically allows you to file between three to five days earlier than you would if completing the process semi-manually. This also frees up time that can be dedicated to the review process, making it much more likely that your return will be right first time.
- Lower costs – From collating the data to performing the calculations and checking the results, tax reporting is an expensive process, especially if additional review/s by your advisor are included. Digitalising your processes can easily reduce the cost of compliance reporting by half.
- Prove your workings – Robust digital audit trails can help reduce the risk of targeted interventions because you can simply demonstrate how you arrived at calculation to HMRC using time-stamped events.
Taken together, these benefits make a strong case for businesses to review their tax digitalisation strategies now. They emphasise the need to look beyond tick box compliance towards a longer end game because, while MTD has certainly helped business focus attention on tax processes, it’s just the first stop on the journey towards a modern tax administration. To last the duration and boost your business, you’ll need tax technology that can last the course and carry you over the line.
Our software compliance platform, AlphaVAT, provides the means to digitalise your tax processes in line with HMRC’s plans, effectively futureproofing your tax function. To find out more and to discover how you can benefit in the short term please feel free to sign up for a 30 minute one-to-one technology consultation to chat through your organisation’s needs.