Technological fix
1 Dec 08
Donald Drysdale turns his attention to small firms in his series looking at accountancy in 2025, and sees technology enabling home working and facilitating big combines of practices. Taxes on raw materials may finally be the spur to the paperless office
by Donald Drysdale
Jeri had always worked from home. She had started her accountancy practice before her first child was born, and all three children had grown up and moved on. She suspected (and hoped) that it might not be very long before grandchildren appeared.
On setting up a practice shortly before the turn of the century, her decision to use technology for book-keeping, payroll, accounts preparation and tax computations had been a no-brainer. A variety of reliable proprietary packages were available for each, and fierce competition had kept prices down and ensured that products were generally versatile.
Her original accounting and tax software vendors had been acquired and reacquired by avaricious software industry consolidators, but fortunately both had provided acceptable migration paths. She knew others who had not been so lucky.
She was pleased that the lock-in factor that used to make it hard for accountants to switch between software products from different vendors had been largely removed, thanks to the wider adoption of open standards by developers.
The drive towards online tax filing, between 2005 and 2015, had been a confusing time. Software vendors had tried to provide tax software that was stable and robust and met the needs of users. However, the tax authority (HM Revenue & Customs as it then was) had insisted on pressing ahead too soon with mandatory e-filing on systems that were not up to scratch, creating enormous ill will among taxpayers and tax agents. It had taken the government a long time to realise that everyone wanted to e-file, and that reliable systems were the key to success.
Another big change had been the move towards pre-population of tax returns for individuals. All information sent to the authority on direct returns from employers, pension funds, banks, investment intermediaries and charities was included on personal returns from the outset. In a straightforward case, the client merely had to confirm that the entries were correct.
The process of preparing tax returns for individuals and businesses had also been helped by the government’s publication of risk parameters used by the tax authority in determining whether to open enquiries. These had been incorporated into third-party tax software so that apparent exceptions were flagged up to Jeri and her staff long before submission and could be investigated at an early stage.
Although Jeri’s firm had not always been exclusively female, much of her early expansion had involved farming out work to other young parents (mostly mothers) with pre-school children, and some of these home workers had been with her for more than 20 years.
Operating largely from their homes generated advantages for the employees and efficiencies for the business.
Technology had been at the heart of Jeri’s success. With broadband speeds 20 times what they had been in 2010, she and her home-workers operated in a single virtual office. Although they did not have the video walls and 3D virtual reality conference facilities common in large businesses, they had always-on audio and at-will video, facilitating discussion of issues as they arose. Most client contact was by video phone.
While each employee had a computer configuration of choice to meet working family requirements, the office element of this was a very powerful “slim client” providing a secure window to all the accounting, tax and practice management software required – delivered via the web.
All communications, application software, data storage and back-up were hosted by external providers, with support day and night. Keyboards and mice were rare – most users preferred to interact vocally with their computers, finding it faster, less physically demanding, and more compatible with a balanced home-based life. Jeri could talk to her computer in any room in the house.
Given the dispersed nature of her team, it had been natural to rely sparingly on paper and communicate with clients electronically. This had proved fortuitous when heavy environmental taxes on paper were introduced in 2018. While many businesses and most households struggled to cope without paper for all but the most basic requirements, Jeri’s firm had been almost entirely paperless already.
For years, competition within the accountancy profession had been fierce, and large firms had become stronger and leaner – aggressively reducing margins by off-shoring and maximising their use of technology.
Mid-tier firms had found it hard to compete and, while a few had grown large, most had been swallowed up. Those that survived had done so because of particular specialist expertise or niche skills in specific market sectors.
Many sole practices had withered and disappeared. Practitioners who had hoped to sell out on retirement had often found that there was little realisable value. With retirement ages rising anyway, some decided they could not afford to retire and went on until they dropped.
Jeri had trained in a large firm, back in the days of the Big Four, and had learned the value of second opinions and specialist support. She was therefore convinced, long before the competition became cut-throat, that the secret of survival lay in co-operation among small firms, and had been instrumental in establishing a successful combine.
In this way she could continue to provide a local service – hopefully friendlier and more personal than some larger organisations – while referring trickier problems to colleagues with specialist skills.
For Jeri, working in a bigger team brought other practical advantages. The high price of paper had led to the withdrawal of hard copy tax reference books, and the combine could negotiate much better terms for online reference materials than individual practitioners. The same applied to IT products and services.
Jeri reflected on how successive governments had expressed their commitment to simplifying taxes and reducing administrative compliance burdens on taxpayers, but had failed to deliver. Official attempts to simplify the operation of taxes at the point of interaction with taxpayers had led to tax law being rewritten in plain English.
It was much more voluminous than before, but still beyond the understanding of ordinary citizens.
There had been no let-up in the demand for tax compliance and advisory services.
Taxpayers now had more options when it came to tax advice. They could go to a large firm, where a wide range of expertise would be available in-house, or they could come to a smaller firm which might have to call in specialist help.
As a third option, at relatively modest cost, they could access one or more of the large number of expert systems readily available to taxpayers and tax agents, providing intuitive problem-solving based on pre-programmed tax rules.
Expert systems of sorts had been around 50 years ago, but had received a bad press. Back in the 1970s there was hope that system dynamics would facilitate intelligent non-linear systems to analyse and resolve complex problems in fields such as tax, but this vision had not been realised for 40 years.
The breakthrough had come with the inexorable pressure on margins and demands to commoditise rare tax expertise and make it more widely available – aided, of course, by massive increases in computing power.
XBRL had also brought further changes, and Jeri’s third-party web-based accounting and tax software now incorporated full tagging of all transactions. This not only ensured that clients of all sizes were meeting the new record-keeping requirements, but also provided sophisticated analysis capabilities that were invaluable in responding to tax enquiries.
Across the practice, IT was now far more than a basic support function to enable work to be carried out. Even in a small organisation such as this, services were delivered online as a matter of course, and technology was the essence of how those services were performed.
As accountants and tax specialists, the members of Jeri’s team were carrying out tasks
which could no longer be performed without essential technology skills that they had developed and honed.
Donald Drysdale is assistant director of tax at ICAS and non-executive chairman of Tax Automation Ltd. He is a chartered accountant, chartered tax adviser and chartered IT professional.
This article draws heavily on contributions from contacts in the tax and IT professions whom Drysdale invited to offer their visions of tax technology in 2025. He is grateful for all their imaginative ideas.