Intelligent Tax Automation Solutions for Making Tax Digital

Sabu Samarnath
Sabu Samarnath
6 min read

Most tax advisors agree that the transition to digital will help businesses keep better track of their tax and VAT. However, the interim is creating additional work and current tax automation solutions have limited capabilities. 

Smaller firms, especially those who still use cash, may struggle to keep up with the quarterly reports. Meanwhile, advisors working with larger companies with complex acquisitions spend additional time unravelling tax and VAT matrices for each aspect of the business.

And all this before Income Tax Self Assessment (ITSA) customers go digital in 2024. 

Making Tax Digital (MTD) was first introduced in April 2022. It requires all businesses earning more than £10,000 per year to transition to digital tax and VAT filing. It marks the beginning of HMRC’s 10-year strategy to digitalize the VAT process, which will evolve into real-time reporting by 2030. 

Despite the promise of bringing down costs, the transition to MDT remains a challenge for a significant amount of businesses. So, how can the newest developments in tax automation help to lighten the load?

Challenges in MTD Tax Technology 

The rapid march of technology has resulted in a myriad of new tax automation solutions that are making big promises. It is difficult for decision-makers to choose the right solution and whether it will be worth the time and investment. 

However, time and resources are of the essence. Switching from manual filing to a digital process makes everything faster and easier down the line, but tax authorities have woefully overestimated the public’s ability to adjust and it appears that tax firms are paying the price. 

The Administrative Burdens Advisory Board (ABAB) proposed that HMRC postpone aspects of the digital rollout, and listed key areas of concern.

Transitioning to MDT: 5 key areas of concern

  1. Taxpayers are not ready or ‘digitally-enabled’
  2. Taxpayers have limited ability to comply with the new rules
  3. Cost burdens to the taxpayer 
  4. Tax advisors are concerned they will not be able to recover the cost of scope creep
  5. Taxpayer awareness of the changes is low

Whether or not the call for delay will be answered remains unclear. However, what is clear is that tax firms must untangle and make sense of often complex and unclear customer data. 

To address this problem, the tax industry needs to fill a skill and knowledge gap, and quickly. It must do this if the transition is to go smoothly and scope creep is to be avoided. 

‘’It has definitely created more problems but that’s not because of the project, it is because of the terrible state of tax determination and reporting that the majority of companies have and the poor design of accounting or ERP system they use’’ states Andrew Bohnet, Managing Director of Innovate Tax.

Tax advisory firms need to offer interpretation and leadership within the digital tax space if MDT is going to achieve the levels of efficiency it is promising. Smaller firms with fewer resources are still struggling to transition fully to MDT three years after the initial phase in 2019. 

Now with another wave of companies required to transition to MDT between 2024 and 2026, the potential backlog will be insurmountable if tax firms cannot keep ahead of demand.

Seamless tax reporting for clients

According to HMRC, it is imperative that customer systems are compatible with HMRC’s and can:

  • Create a digital VAT return from the records
  • Store VAT records
  • Send and receive tax information from HMRC

While this may seem straightforward, there are still a large number of businesses that are reliant on manual record-keeping. They will have to adopt a bridging software that is HMRC-compatible, but often they do not offer digital bookkeeping.

Therefore, understanding how these technologies work and interact is critical to delivering a seamless tax reporting experience for clients. In this space, intelligent tax automation is a cost-effective way to maintain a competitive edge. 

However, deciding which tax automation solution is best is a single point of stress for decision-makers. Multiple technologies have matured at the same time and the level of choice can be overwhelming. 

Indecisiveness creates stagnation, and stagnation eventually leads to crisis. 

Avoiding crisis with decision automation for tax

The scope of choice can be quickly narrowed down once we step back and look at the bigger picture. Tax is ripe for automation, as it is fundamentally rules-based. 

What tax firms need is an intelligent tax automation technology that can harvest data from any type of digital record, submit those returns through an application programming interface (API), and produce an accurate electronic audit trail from digital recording through to the submission of returns.

Such a technological ecosystem is a powerful tool for MDT reporting and is more than capable of performing real-time submissions. Already preparing your firm for HMRC’s transition to real-time reporting targets in 2030.

To deliver the best advice and service to clients, firms need tax advisors that are highly skilled in data management and technology. Outsourcing technology-focused specialisms to shared service centres is a quick fix, however, keeping the process in-house using tax automation technology is the easiest and cheapest option.

European tax firms are steamrolling ahead with digital solutions. 80% of EY respondents in a global survey declared that they will be investing in tax automation and technology this year.

Scaling your business with automation

There is a huge difference between being busy and being productive. True productivity requires cutting out repetitive, mundane tasks. Investing in smart solutions frees you to focus on more meaningful work, such as guiding your clients through the digital transition.

This is precisely what decision automation is delivering for teams across multiple industries, and it is the perfect tool for MDT. Forrester suggests that automation is cutting operational costs by 90% and saved $134 billion in value by the end of 2022. 

This is because decision-making technologies go further than the simple task automation that most firms use.

Decision automation software like Rainbird can make complex, human-like judgments based on a combination of real-world expertise, and applicable rules and regulations. What’s more, it can do this at scale across multiple different datasets.  

Rainbird can form judgements in the face of uncertainty and missing data. It can provide a full audit trail and rationale behind every judgement. These features set Rainbird apart from most other AI and tax automation technologies. It is a perfect fit for tax advisories on the front line of Making Tax Digital.

Not only does decision automation give you the ability to increase visibility and control across processes, but it is significantly cheaper than outsourcing and makes operational scaling easier.  

Ready to Transform Your Organisation with Decision Automation?

Much like the pandemic, the digitization of tax and other technological reforms looks set to accelerate the adoption of tax automation technology. Introducing decision automation presents untapped opportunities for tax firms to thrive during the upheaval of MDT. 

Decision automation leverages the best of your collective experience and can open up new opportunities for your firm. Rainbird democratises knowledge, so it can be applied and scaled across the business. 

With your best experts now free from repetitive, labour-intensive processes, they can now focus on what matters most – your clients. 

Decision automation allows organisations to redirect resources and develop more client-centric services. It keeps firms agile and able to keep up with demand. Rainbird offers automation solutions that respond quickly to regulatory changes, giving you better MDT support protocols than your closest competitors. 

To find out how decision automation can benefit your business, get in touch or Download our free ebook for further guidance.

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