This article was first published in the February 2017 UK edition of Accounting and Business magazine.

Tax administration and technological innovation have become inextricably entwined. In part, this is because of the much-criticised tax policies and effective tax rates paid by some of the world’s most innovative technology companies. However, it is also because of the enormous impact that digital technologies can have on how taxes are administered. Australia, Brazil and Estonia are just a few of the countries where governments have exploited these technologies to innovate and improve tax administration.

Digital tax administration is well advanced in Estonia. There is a central, shared platform for all government agencies and large banks; data is collected across each period on taxable events from employers and other third parties; and citizen identification is secure and robust. These factors combine to enable the Estonian Tax and Customs Board to provide pre-populated tax returns – which take an average of five minutes to approve and submit with a digital signature.

Innovation in tax administration has taken a different path in Brazil. Electronic invoicing is mandatory for nearly all enterprises, as is the use of a prescribed nota fiscal eletrônica format and invoice submission to the Secretaria da Fazenda (the tax authority). This approach has helped the government to reduce levels of unreported transactions and created a database that can be mined for insights into the national economy; it has also enabled businesses to achieve quicker collection times and lower costs.

The Australian Taxation Office (ATO) has made pioneering use of innovative security techniques, including a voice identification system and hardware-tied security keys. When the ATO retired its legacy online filing tools in 2016, replacing eTax with an updated web-based version of myTax, it also introduced an ATO app, so that taxpayers and agents can access ATO systems anytime, anywhere, from any smartphone, tablet or computer. 

The profession’s reactions to such developments tend to be mixed, not least because of the many approaches to the implementation of digital tax initiatives and systems, and the underlying variations in tax regimes, across jurisdictions. There are differences in how such initiatives are received by those affected even within a single jurisdiction, coloured by various factors, including personal experience and outlook – optimistic or otherwise. 

‘Unmissable opportunity’

Witness recent reactions to plans by HM Revenue & Customs (HMRC) to mandate compliance with its Making Tax Digital (MTD) initiative in the UK. 

‘The transformation of the tax system to fit the digital and mobile age presents an unmissable opportunity for accountants,’ says Ian Rodgers FCCA, director at The Profit Key. Kevin Whitehouse, founder of accountancy firm Prime Entry, agrees, saying: ‘It’s the biggest opportunity to hit the accountancy profession in years.’

By 2020, the UK government wants a fully digital tax system, which will make HMRC’s tax administration ‘more effective, more efficient and easier for the taxpayer’. So accountants and many of their clients can wave farewell to the annual paper tax return and say hello to mandatory digital record-keeping and the quarterly reporting of business income and expenditure, plus voluntary tax payments. A phased introduction from April 2018 will start with the self-employed and small UK businesses.

Providing transition guidance and support to existing and new clients may be easier for some firms than for others. Whitehouse says: ‘For those firms embracing available technology, this won’t be a step change. They will already be working closely with their clients digitally and the change will simply equate to transitioning between filing tax documentation annually, to quarterly.’

Rodgers adds: ‘The proposed changes are going to compel clients to go into some form of cloud-based software.’ He and Whitehouse are hoping that the use of such software and mobile apps will simplify the transition for their clients. 

Developers of cloud-based bookkeeping and accounting systems are already positioning their offerings as potential solutions for MTD (and gleefully rubbing their hands). Likewise, some of the apps in the cloud ecosystems around them offer the functionality – such as expenses recording and management – needed for digital record-keeping. 

Out of the dark age

The Profit Key has opted for a custom, branded app (from MyFirmsApp) that unifies access to the multiple apps that many firms and their clients use. ‘Having the app and giving them access to it from mobile devices is really going to help our clients,’ Rodgers says. Whitehouse urges more firms and clients to eschew spreadsheets and the seasonal carrier-bag parade: ‘This type of dark-age accountancy is exactly why MTD is such an important change in the industry.’ 

Not all members of the profession or all of its technology evangelists are so sanguine. At Capsa Accounting, Ray Backler and his clients have been working closely together using cloud software (from Liberty Accounts) for more than a decade. He also has experience of the sort of add-on app that supports digital record-keeping by allowing businesses to capture data from bills, invoices and receipts. ‘The process is not always as straightforward as it might be,’ he says.

Tax and foreign currency calculations, and credit and debit card transactions, can create practical challenges. It can be difficult to get date, amount and supplier all in one photo, or to ensure that in a single receipt for petrol, a chocolate bar and a newspaper, these items don’t all end up as motor expenses. 

‘You couldn’t get more computerised than we are,’ Backler says, but Capsa’s clients are not all highly computer-literate. ‘We still run their payrolls, do their VAT returns, and PAYE returns and payments. They may use Liberty Accounts to create invoices, but if we hadn’t come along and said that doing this would make their lives easier and keep their accountancy fees down, they’d probably be producing invoices and recording expenditure using Word and Excel.’ Many other UK businesses still are.

These businesses’ move to digital record-keeping and quarterly reporting is likely to be a step-change practically and financially. ‘There will be a requirement to ask your agent to perform work five times a year instead of once a year,’ Chas Roy-Chowdhury, ACCA head of taxation, recently told a government Treasury committee. Some small practitioners may have to drop the client or write off the additional cost of advising on MTD.

Roy-Chowdhury warns: ‘I do not think this is going to be a business opportunity for accountants.’ 

Lesley Meall, journalist