From XU Magazine, 
Issue 36

Tax Update

Things You May Not Have Heard About But Need to Know

Recent developments in tax including challenges with MTD, OECD’s Tax Administration 3.0 vision, HMRC information powers, crypto taxation, Generative AI, and digital transformation opportunities.
This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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We’re living through times of change. From the rise of AI to social media rebrands, and now, apparently, the arrival of extraterrestrial life. While those stories grab the headlines, it’s easy to lose track of change happening elsewhere. In this instance, I’m referring to tax.

There have been a number of noteworthy developments of late, all of which could have a profound impact on taxpayers, businesses, and tax professionals. In this article, I’ll be rounding up those key updates along with everything else that’s been going on in the world of tax.

1. MTD (Making Tax Digital) Update: The NAO’s Report

The implementation of Making Tax Digital (MTD) by 2024 has been deemed unrealistic by the National Audit Office (NAO) due to insufficient assessment of the scale of work required. The NAO supports further digitalisation but has emphasised that there are a number of significant delivery risks.

One major challenge is migrating data from legacy systems to the new Enterprise Tax Management Platform (ETMP). However, once completed, this transition will enable HMRC to provide a more integrated service to taxpayers and agents. The potential to pre-populate tax returns with data from third parties could be far more transformative than that of MTD ITSA.

2. The Future of Tax Authorities and Technology

The Organization for Economic Co-operation and Development (OECD) released a report on “Tax Administration 3.0” in December 2020. This vision goes beyond digitalising forms and returns, focusing on real-time data and moving away from periodic reporting. It also explores the concept of “compliance by design” where compliance rules are built into taxpayer software and systems.

While some rules might be uncontroversial (for example building in a prompt where a non-VAT registered business is approaching the threshold), others (for example where views differ) could be highly controversial. Some elements of Tax Administration 3.0 will be easier and quicker to deliver than others, but the potential implications for practitioners and businesses are huge.  

3. HMRC information powers paper from Tax Admin day

On April 27, 2023, the government unveiled a series of technical tax policy proposals aimed at modernising the tax system, addressing non-compliance, promoting fairness and enhancing the efficiency of the customs system for traders. The implications could be very far-reaching, especially when read in the context of Tax Administration 3.0.

These proposals cover a number of areas, including:

  • A call for evidence on information and data powers to support digital transformation and improve compliance capabilities
  • Exploration of standardised data provision, flexible legislation, pre-population of returns, and consistent powers across tax regimes
  • New information gathering powers, with plans to collect new data on self-employed start/end dates, employee hours worked, and dividends paid in owner-managed businesses

4. Crypto and Blockchain: Taxation challenges

The rise of cryptocurrencies and blockchain technology could well cause a storm in terms of new taxation challenges. But many believe they also have the capability to transform accountancy and tax administration.

Whether they are here to stay, or a passing trend, remains to be seen. The fact is, while taxpayers continue to engage in this kind of activity, tax professionals have their work cut out in trying to stay across and ahead of any new requirements. It’s clear those that manage to do so have a crucial part to play in modernising traditional tax practices.

5. Generative AI and its impact on accountancy

Recent advances in Artificial Intelligence, particularly Generative AI, have the potential to revolutionise accountancy and tax professionals’ work. AI is already widely used to process data, analyse patterns, and generate reports. Generative AI, like ChatGPT, can further expand opportunities, particularly in advisory work. However, with these opportunities come new risks and concerns that need to be addressed proactively.

6. Embracing technology for digital transformation

HMRC remains committed to its digitalisation efforts despite concerns raised about MTD for ITSA. The focus continues to be on harnessing real-time data for improved decision-making and future tax planning. Digital transformation is an ongoing process, constantly refining automation to provide deeper and faster insights.

Dext is dedicated to supporting businesses, accountants and bookkeepers on their digital journey and works closely with HMRC on future initiatives. Dext ensures seamless collection, extraction, and categorisation of financial documents in real time, providing actionable insights to help users make informed decisions at the right time.

Rather than being a threat, technology and advanced automation present significant opportunities. Embracing these developments opens the door to an exciting future where businesses can leverage the benefits of digitalisation.

To learn more, watch our on-demand webinar.

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