Focusing on tax technology

My first camera, back in the 1960s, was a Kodak Brownie. Over the years I have progressed through Instamatics, a Contax T2 and a series of Canon SLRs to my current Canon EOS 90D. The technology of photography has changed radically, from film to digital, but one thing has remained constant: the view you capture depends on the lens you use.

The same is true elsewhere. Over the past five years, the view many people have had of tax technology has been the one seen – to a greater or lesser extent – through the lens of Making Tax Digital (MTD). When I recently began writing The Tax Technology Horizon, a report on tax technology for Tolley, I deliberately set out to use a different lens, to look at how digital technology is being harnessed for the benefit of businesses and tax agents.

Wide angle

I wanted to look at the widest possible range, from nano-businesses to multinational enterprises (MNEs) and at the technologies they use to facilitate tax compliance and planning. One of the first things that struck me was that while some terms were widely understood, others weren’t, so I knew I needed to include a glossary from A to Z (or, in fact, API to XBRL). Another early realisation was that the same core technologies – optical character recognition (OCR), robotic process automation (RPA) and artificial intelligence (AI) for example – are used right across the business size spectrum.

At the nano-business end of the spectrum, it is OCR that enables an image of an invoice recorded on a smartphone camera to be digitalised and passed on by RPA to an accounts software programme; it is AI that categorises the data, based on ‘learned’ experience. At the MNE end of the spectrum, OCR and RPA are being used at scale to capture and transfer huge volumes of data.

Several firms (of different sizes) told me they are now using OCR and RPA to capture information from source documents such as dividend vouchers and import it into tax software, automating yet another manual operation. RPA is ideally suited to handling high-volume, repetitive, rules-based tasks such as taking information from financial reporting systems such as SAP and Microsoft Dynamics and transferring it into tax systems.

There are many such processes in tax. None of this is technology that HMRC has forced on us. It is technology that can help to automate tasks, make record keeping less of a chore and free up time for more profitable activity.

Pixels, image and speed

Anyone who has a digital camera knows that generally, the greater the number of pixels, the better the image quality. There is no value in data per se: more data may give more insight, but only if it is efficiently structured, processed and visualised. Data analytics and data visualisation tools are, therefore, critical components in the tax and financial technology toolbox and – as with OCR and RPA – they are now widely used. The presentation of data in graphical or visual form is a key feature of many off-the-shelf software packages and apps. For those who need bespoke solutions, options such as Power BI offer powerful, easily accessible tools. 

As processing capacity and speed increase, more value can be gained from real-time data to give insight that enables businesses – again, whatever their size - to react more quickly to events.

Artificial intelligence

AI is already impacting our everyday lives, for example powering predictive text on a smartphone or giving recommendations when we shop online based on our previous purchases and searches.

Views vary on the extent to which AI will impact on the accountancy, finance and tax profession. What is not in doubt is the fact that it is already doing so: it is employed in accounting software to categorise transactions or to carry out iXBRL tagging based on ‘learned’ experience; it is being used to carry out benchmarking for transfer pricing; it is being used to identify transactions qualifying for R&D tax reliefs and capital allowances; it is being used to trawl government announcements across multiple jurisdictions for salient points and to highlight them to affected businesses at a speed and on a scale that would otherwise be impossible.

AI is also intruding on the advisory space. At one level, it is answering basic questions via chatbots on websites. At another level, H&R Block in the US has used IBM’s Watson AI to guide clients through their tax affairs while they sit with an adviser. The question is not whether AI will change what we do, but how it will change it, by how much and how quickly. The answers to these questions are largely down to us. The doom-mongers say that it could replace us; the optimists – of which I am one – say that we should harness its power and potential to enhance and extend what we currently deliver.

Enhanced cloud

Back in the days when my fascination was with black and white photography, I always carried yellow and orange filters to enhance the clouds in landscape photographs. The word ‘cloud’ now has a meaning that simply didn’t exist back in those days and the COVID-19 pandemic has re-emphasised that. Cloud computing enables us to engage virtually, 24/7. It opens up possibilities for real-time client engagement that would not otherwise exist.

Everyone I spoke to while writing my report for Tolley – from practitioners to software suppliers – agreed that the pandemic had driven more people to use cloud technology, although most also felt that the pace of change would slow down post-pandemic.

Several times now, I have talked about accounting and tax technology interchangeably. This is another key trend: we are moving from a world where finance and tax functions were often separate and distinct to one with far more overlap and interchange; one where the need for all functions to feed off a single, structured data pool is recognised. And again, this is true across all sizes of business.

Skills old and new

Some of the old skills needed to take a photograph with a film camera are still needed in the digital age, while some are now completely redundant – and some entirely new skills must be learned. It is the same with tax technology. Most of the people I interviewed felt there would be a greater need for those working in tax to understand more about technology and the practical, technical and governance challenges it brings. Happily, no one predicted that we would all need to become technology wizards.

If you would like to broaden your own knowledge of technology, I can heartily recommend the ICAEW ‘Finance in a digital world’ online learning modules, the ICAEW Data Analytics Community and, of course, the ICAEW Tech Faculty as go-to resources for digital knowledge in the world of accountancy and finance.

In the picture

I’ve only been able to touch on some of the points and technologies covered in The Tax Technology Horizon here. I haven’t, for example, mentioned Blockchain, cryptocurrencies, cyber security, ethics, open banking, Engine B or tax simplification. If you would like to read more, including insights from leading experts from practice, business and the software industry – or even just to have the glossary – you can download the report (free of charge).

There is more – far more – to tax technology than MTD.

About the author

Paul Aplin, past President of ICAEW and member of the Tax Faculty Board. Paul will be exploring tax and technology further in this year’s Hardman Lecture on Wednesday 10 November