A number of experts came together at the Taking Tax Digital Conference 2020 on 5 November to explore how economic and technological drivers are changing the face of tax. The consensus? That businesses are playing catch-up with tax authorities who have access to sophisticated compliance technology.
For the first time in its twenty year history, the Tax Systems customer conference was held on line this year due to the pandemic, a subject that dominated the first keynote delivered by David Smith, Chief Economics Editor for the Sunday Times.
Economic overview
Setting the scene, Smith debated whether we could expect to see a V, W, U, Nike swoosh or even K shaped recovery from the pandemic and said the effects would likely last until Q3 2021 or even 2022. It’s been the deepest recession for over 100 years – potentially 300 if the economy shrinks more than 10% – while a second lockdown has created “a new period of uncertainty that has given us much weaker growth prospects for the next six months”.
Smith warned that “businesses have been obliged to take on uncomfortably high debt that they don’t want to” which could lead to higher insolvency rates. He acknowledged that government would target businesses to reduce the tax gap and make a dent in the projected national deficit of £372bn which dwarfs the £160bn of the previous financial crisis. Further known unknowns include Brexit, with a ‘no deal’ potentially causing further economic shock, although he though this unlikely instead favouring a “bare bones deal” which would then be built on over time. While the next 4-5 months will be tricky, he believes we will be “back in our offices and city centres” in the future and that the new normal won’t look that different to the old.
Digital debate
Taking part in the conference panel session were:
- Adrian Hextall, Director, Tax Technology at Smith & Williamson
- Tim Duggan, Tax Technology and Transformation Director, KPMG
- Lee Holloway, Tax Partner, Grant Thornton
Q1 What should tax managers do to prepare for digital tax?
Hextall said businesses must get into the position where they can respond quickly and effectively to requests from tax authorities. He said tax managers are struggling to play catch-up and to provide auditable data trails, meaning that in the event of an audit they cannot prove their compliance.
Duggan agreed, saying it’s no longer about having a conversation with HMRC; they want to see the data. The tax team needs to extract the necessary tables from the ERP and that means going to the finance and/or IT teams. That source data then needs to be reconciled with the tax return which can easily involve poring over spreadsheets for a couple of weeks.
Holloway added that part of the problem is this need to partner with different teams within the business. It can take time to align finance and IT teams to a project and if that gets set back, as with MTD, this doesn’t help, particularly given that the tax function will often have to fight for that resource.
Q2 Can we change perception of tax as a cost centre?
Hextall replied that all businesses are now focused on the bottom line but that because the Chancellor will look to obtain revenue from businesses to recoup a large amount of the funding provided during the COVID-19 pandemic, we must identify accuracy as well as efficiency to prevent inaccurate filings and penalties.
Q3 What value can we derive from analytics?
On the question of analytics, Duggan said tax authorities have invested significantly in data software are technicians which are being used to identify data trends and outliers and to target companies. He cited one example in Ireland where using data modelling was used to identify those companies that would not survive the 2008 recession and so would not be worth pursuing. He warned that businesses often miss the bigger picture and opportunities afforded by data analytics and that there is a real need to bring all disparate data into one place.
Hextall added that there is no one-size-fits-all analytics solution; it needs to be related to the business model and reporting requirements. Business Intelligence tools offer the opportunity for ‘at a glance’ analysis and provide more depth when needed which Holloway agreed is likely to lead to better forecasting and an easier review process. He suggested that many businesses find it difficult to determine what claims they can make and that analytics will make it easier to view/track this. Both said analytics would not just reduce the prospect of fines but also provide the business with real value add.
Q4 MTD for CT is coming, how would you model your department to embrace it?
Holloway said it was important to get business partners onside, as the tax team can’t do it on their own, to map the procedures to be automated, and to ensure any lessons learnt from MTD for VAT are applied. He highlights issues such as data quality (some data sets need to be adapted/formatted before they can even be used) and adjustments that are difficult to automate, such as PESM. Hextall agreed that consolidation is the difficult piece. But he said the APIs for file processing and data transfer mechanisms are in place. What he found frustrating was the lack of consistency, citing the DAC6 / MDR hybrid approach which combines a portal and manual input forms with software, and hopes MTD for CT will take a more modern method in line with what was developed for MTD for VAT.
Our guest speakers made a great contribution and their insights into the economic, technological and strategic drivers at play certainly gave us food for thought. As we move into 2021, there’s an appreciation that the role of technology is set to increase still further. Yet there’s also an awareness that the tax function will need to work more closely with other elements in the business whether that be to gain access to IT resource, or to share data and drive decisions.
To read the rest of our coverage of the conference, please see the second blog post in the series here. Or, if you’d like to find out more on how Tax Systems compliance solutions can help you prepare for the year ahead, do contact us at enquiries@taxsystems.com or on 01784 777 700.
