In his 2021 Hardman lecture, ICAEW Past President Paul Aplin looked at the technologies that are reshaping the make-up of the modern tax professional.
In her delayed 2020 Hardman lecture back in February 2021, Jane McCormick talked about Tax Administration 3.0. Building on that theme in his 2021 Hardman lecture on 10 November, ICAEW Past President Paul Aplin OBE focused on Tax Professional 3.0: his personal views on how tax professionals are changing – and will change – the way they work.
He started his lecture on the future by speaking about the past, from the earliest, tally stick-based accounting measures of early England to 17th-century attempts to create a calculator. There has always been a drive to improve accounting by using technology.
In more recent history, tax advisers started using tax software in the mid-1990s. By 1997, electronic self assessment tax return filing began. At the time, people doubted that more than the simplest returns could be filed electronically. Now, more than 90% of them are.
Aplin asked: “Did people lose their jobs? They didn't. We invested that time and training in creating more interesting jobs, providing better advice to clients. Technology wasn't a threat: it was an enabler. And I believe it still is.”
The new lexicon of tax and finance
In recent years, new terms have entered the vocabulary of tax and finance, Aplin explained, such as OCR, RPA, data analytics, data visualisation and AI.
OCR, or optical character recognition, is being used to translate images into data that software can understand. It’s being used in all kinds of business, from multinational corporations to the smallest nano-business. It’s often paired with RPA – robotic process automation – shifting that data into accounting or tax software. This is now readily available in many off-the-shelf packages.
That data is valuable to tax practitioners and authorities for what it reveals, which is where data visualisation comes in. “All of these tools are already in the tax technology toolbox and we're using them either through bespoke products or through familiar commercial brands.”
Many firms that Aplin has spoken to recently are using OCR and RPA to automate getting tax return information from clients, using it to request, chase, capture and ingest information through the software. This, he said, would become a common focus for tax mechanisation over the next few years.
“One tax practitioner said to me recently: ‘I don't want more paper; I want data in a form I can use easily.’ If OCR can read and RPA can move data from a PDF, such as a letting statement or a broker statement into accounting software, why actually bother with the paper? Why not just transfer data instead?”
A lot of conversations among tax professionals and authorities are around data: how to access, capture and structure it. The focus on accurate, accessible data is a critical interest of tax authorities and businesses. It’s creating a closer working environment between tax and finance function, ensuring that tax-sensitive information is identified at its earliest stage. “Identifying the relevance of an item for tax at the point of transaction maximises efficiency and utility and helps us to get the tax right.”
Transformative technologies: open banking and blockchain
Aplin turned his attention to open banking as a critical technology development in delivering that efficiency. Around half of the UK’s small businesses use open banking-powered services. This means that more information can be transferred to accounting and tax software at the point of transaction, or close to it. This is being taken further; last December, HMRC put out an invitation to tender “To fully understand the feasibility and potential uses of accessing real-time transaction data through open banking directly from business banking products.”
“It’s now possible to pay tax by open banking. My understanding is that payments are being allocated with far more accuracy, thanks to open banking. But HMRC saw even greater potential.”
Open banking is potentially transformative, as is blockchain, said Aplin. Blockchain is the distributed ledger that underpins cryptocurrencies. He returned to the tally stick of ancient England, in which both halves of the stick were required to settle an account.
“A blockchain is an immutable chain of encrypted blocks of information, of which there are multiple shared identical copies, which once created can't be changed without the knowledge of all participants. That sounds to me like a 21st-century version of the tally stick.”
Smart contracts can be built into a blockchain to trigger specific actions. For example, a payment upon the satisfaction of certain conditions such as the delivery of goods or services, agreed by the chain participants.
From a tax point of view, this could involve cross-border transactions and transfer pricing with trade agreements built into the chain. This would leave a date-stamped, transparent audit trail that is as valuable to businesses as it is to tax authorities looking at the audit trail.
It could also help with payroll: the employer might set the gross pay and a smart contract could then calculate the necessary PAYE deductions and pay the net pay to the employee and the tax to HMRC. “Tax Authorities in Argentina, Estonia, Finland, Sweden have all looked at blockchain to improve tax administration. It’s especially suited…to transactional taxes such as VAT or GST. Smart contracts can settle tax liabilities in real time.”
While Aplin was keen to separate blockchain from its cryptocurrency origins, he explained that Tax Professional 3.0 needs to understand how cryptocurrencies work. “I suspect that most of us, by now, will have had at least one client ask about the tax effects of a cryptocurrency transaction. HMRC even has a cryptocurrency taxation manual.”
Where does this leave tax professionals? It’s easy to feel threatened by all of this change and what technology is able to do, and there is a risk, Aplin explained. If the profession ignores this technology, it could take profitable work away from it. What tax professionals must do, as they have done in the past, is use this technology to enhance what they can offer to their clients.
“We need to be clear about what a tax professional can do currently that a piece of technology can't do: exercise judgment, consider the ethical implications of a transaction, have empathy with those we advise.
“The human touch will, for as far ahead as I can envisage, always be the domain of the professional. The human professional skills will become more, not less important, in a digital world. They will be vital for Tax Professional 3.0.”
About the Hardman lecture
Philip Hardman was senior tax partner at Grant Thornton and a founder member of the Tax Faculty in 1991. A leading figure in the world of tax, respected and admired not only for his technical knowledge and vision but also for the panache and humour with which he presented, Philip died in January 1993 and an annual lecture series was established the same year to perpetuate his memory.
Each year a leading member of the tax profession, or a prominent figure involved in taxation, is invited to present the Hardman Lecture.
Hardman Lecture 2021
Watch past ICAEW President Paul Aplin's lecture examining the technologies that are reshaping the make-up of the modern tax professional.
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