'Making tax digital is evidence of authorities playing catch-up'

The Edinburgh reforms come at the same time as initiatives like "making tax digital" to streamline processes.

With tax authorities transitioning towards real-time data processing, it’s essential for advisers to understand the implications and the opportunities this offers and to guide their clients accordingly. 

At the core, the Edinburgh reforms promote innovation and competition and support the government’s mission for a competitive and technologically advanced financial services sector.

MTD complements these goals. However, financial services taxation has always been an area of complexity. 

HMRC is not alone. Other tax authorities increasingly access more data, in more detail, more often, and are sharing that data more readily across departments and jurisdictions.

Over time, this may lead to the 'death' of the tax return, replaced by real-time data exchanges and tax collections. Countries are moving at different speeds towards this vision, but the direction of travel is clear.

A necessary journey

Financial services has become increasingly complex, global, and digitised, largely driven by technology.

This means HMRC must continue to evolve, to stop is to risk being left outside the IT-driven ecosystem being created around it, unable to efficiently collect tax. 

Some tax authorities are enacting new data-focused tax legislation. For example, New Zealand prioritises simplicity by minimising exceptions and deductions, which helps to accelerate the country’s ambitious digitalisation programme.

Tax roles have an opportunity to redefine themselves in advance of the authorities

Other countries, including those in Eastern Europe, Latin America, and southern Europe, have a similar approach.

But countries with older tax legislation typically find it more difficult to adapt as markets are digitised.

The UK’s antiquated and complex tax system limits the speed with which HMRC can move. While it has invested heavily in IT for many years, it has first needed to update fundamental and disparate parts of IT infrastructure before striding towards a digital future.

Nevertheless it has recognised the need to move towards these same goals.

This is especially true given the global nature of the financial services market and its importance to the UK economy. 

Impact on business

Tax teams and advisers have an opportunity to redefine themselves in advance of the authorities.

Tax is no longer just a compliance and reporting function; it needs to be close to the beating heart of the business, in turn seeing transactions and decisions as they happen and identifying and addressing issues in real time.

This is possible given today’s technologies but requires a fundamental rethinking of what the tax advising role is, how it works, and how it interacts with the business. 

Tax teams need to be a master of data, not beholden to it. The team or tax adviser needs visibility over data much sooner to provide insight before the data is shared externally, understanding that it will increasingly be shared in real time with tax authorities (eg e-invoicing).

But how to get there? Each business needs to plot its own course towards this goal, which will depend on a range of internal and external factors.

To start, it’s important to identify how the tax officer operates now and whether the they can leverage existing or planned change projects elsewhere in the business to access 'better' data, sooner. This is the lifeblood upon which future flexibility, scalability, and transparency depends.

A realistic vision can then be built for the team, and a journey can be plotted out to achieve it. Quick wins can often be identified along the way and complement existing change projects without significant financial or resource commitment. 

Often, the tax officer or adviser lacks the confidence to engage with these other projects and stakeholders, but early and open two-way communication about partnering is key.

No change is not an option, and the most effective change to implement and operate always comes from such joined-up initiatives.

The road ahead

As tax continues to change, the Edinburgh reforms and initiatives like MTD are evidence of authorities playing catch-up.

Tax should see these initiatives as opportunities to build resilience, flexibility, and insight over data—an opportunity to become a profit centre and proactive risk manager for the organisation.

If a client has not started evolving their tax team, financial advisers can bring significant strategic and operational value by starting the conversation.

As a trusted adviser, you are in an optimal position to help them understand the impact of these changes, inform and educate stakeholders and, most importantly, help your clients develop and deliver practical plans to change.  

The road ahead may seem daunting, but the pace of change will not slow. There is no real alternative to tax adapting to, and benefitting from, its new role.

Andrew Burman is principal of tax transformation at tax services and technology firm Ryan