How technology is transforming the tax landscape
Paying tax is one of the oldest economic structures in the world, evolving from clay scripts and cylindrical tokens in 3BC to the modern-day processes we’re familiar with today. Damon Anderson, Director of Operations at Xero UK comments
n the last few years, rapid developments in digitisation have led to another overhaul of how we pay our taxes, shaped by new technology. The government’s Making Tax Digital scheme, which currently requires businesses over the VAT threshold to keep digital records and submit their VAT returns through cloud software, launched in 2019. It forms part of HMRC’s ambition to become one of the most digitally advanced tax administrations in the world.
Damon Anderson, Director of Operations, Xero UK
And with the scheme set to impact over a million more firms from April 2022, there’s more change on the horizon. But what are the tangible benefits we can expect all this change to have, at a time that is already challenging for accountants and their small business clients?
For accountants, overseeing and maintaining compliance and legislation is a key part of supporting clients. With the volume of reporting requirements increasing alongside tax transparency requirements, digitisation and automation is necessary to help connect the dots and help reduce the errors that plague analogue processes.
Rapid developments in cloud-based technology are also helping to address the productivity lag affecting the UK. For example, accountants using cloud-based technology have been able to file tax and prepare accounts largely undisrupted during the pandemic. In fact, recent research we commissioned at Xero found that 63 per cent of small businesses say their accountant has provided them with an undisrupted service in the last year due to the technology they use.
Through AI and automation, there are huge efficiencies to be made in areas like tax filing and accounts production. Having the right technology in place to automate compliance - such as software like Xero Tax - means less paperwork and fewer mistakes, which is critical for accounting firms who need more time to focus on business growth. This technology saves time - saving two to three hours per job in some cases.
By increasing efficiency, accountants’ time will be freed up to focus on the most important aspects of their role. And if tax digitisation fulfils its full potential, the role of accountants within the small business economy will undoubtedly increase, opening opportunities for accountants to guide small firms on digital literacy and take up essential advisory roles.
This is just the beginning of the evolution of the tax sector. Not only will MTD apply to the self-employed and landlords from April 2023, but MTD for corporation tax is in HMRC's sights from 2026 too. Despite its sticking points, Making Tax Digital has been a force for change, helping accountants and their clients take steps towards making the process more efficient. It is a first step to ensuring that every business in the UK is brought up to a minimum digital accounting standard.
Developments in technology will continue to play a defining role in the tax industry. Those who are implementing a digital-first mindset now will undoubtedly be better prepared for the legislative changes that lie ahead. This is just the beginning of the industry’s transformation, and the opportunities are endless for the firms who put digitisation at their core.