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Changing jobs

31 Dec 08

In the final part of his series on how the accountancy world will look in 2025, Donald Drysdale turns his attention from taxpayers and their professionals to the other side – the collectors

by Donald Drysdale

Tamara had joined the Inland Revenue in 1990, and had seen it merge into HM Revenue & Customs – with all the turmoil and confusion which that had caused. It was not until 2020, after a decade of unpopular tax hikes, that the organisation had been revamped – dropping “His Majesty” and adopting the catchy new title “Public Finance”.

In its first five years HMRC had bowed to political pressure and decimated its staff numbers, surviving only by investing heavily in new technology.

Online filing had proved a godsend, not only genuinely reducing clerical activities but also shifting workload to taxpayers and agents. At the same time, automated risk assessment processes had improved the targeting of tax enquiries and improved revenue yields.

Technology had also been used to de-skill much of the work of the tax authority – with questionable success. There were enormous challenges and risks in having an over-complex tax regime administered by officials to whom it was largely incomprehensible. It was ironic that even the parliamentary lawmakers did not understand the system. In the early years of online filing, HMRC’s IT efforts relied on a multiplicity of inflexible legacy IT systems that could barely communicate with one another. Routine system upgrades caused widespread interruptions to services, sometimes awkwardly close to tax deadlines, which put other pressures on practitioners. Tamara was relieved that these problems were now a thing of the past.

After a shaky and delayed start, amid vocal protests about extra compliance burdens and costs, mandatory XBRL-based online filing by all UK companies had improved the quality of data available and enabled HMRC to focus enquiries more precisely on high-risk cases. While working as a Large Business Service relationship manager, Tamara had seen how this benefited the tax authority.

After implementation of XBRL e-filing, there were other changes – first requiring all businesses to maintain accounting records electronically with all individual transactions XBRL-tagged, and later allowing HMRC real time online access to all such records.

Small businesses that had chosen hitherto to maintain their records manually had complained loudly about the Big Brother society. Even larger businesses had balked at the subsequent introduction of web crawlers – automated spider bots which crawled through the newly accessible business data searching for apparent irregularities.

HMRC’s enhanced access to online records helped them identify pertinent questions to ask. It had also spawned spurious questions – mostly about real time errors before these had been reviewed and corrected in routine year-end procedures.

Enquiries were not necessarily expedited, especially where companies or agents lacked XBRL skills. There was an important learning curve for agents in addressing how to conclude such enquiries swiftly and keep their clients’ costs down. Those who failed to do so had found themselves at a competitive disadvantage.

Security remained a key concern. After a number of spectacular breaches, there had been extensive reviews of data security and data-sharing arrangements within and among government departments.

As HMRC had direct access to business systems for routine tax compliance purposes, the business lobby had expressed grave concerns about security of confidential information and was dismayed by admissions from Downing Street that the public sector could not guarantee secure processing of data. As Public Finance staff numbers continued to be savaged, other time-consuming work was off-loaded.

PAYE was converted to self assessment, using the previous year’s tax calculation as the starting point and making each employee responsible for any coding changes, on pain of stiff penalties for underpayment. Penalties on non-compliant taxpayers were already a massive source of Treasury revenue, and were seen as particularly unfair to vulnerable taxpayers.

Pre-population of personal tax returns, on the other hand, had proved a boon for many unrepresented individuals. Information on salaries, pensions, interest and other investment income was now submitted electronically to Public Finance by employers, banks and other financial institutions, and appeared automatically when taxpayers went to e-file. Nonetheless, you cannot please everyone: concerns had been expressed that taxpayers were being penalised unfairly if they relied on pre-populated data that was later found to be incorrect.

An acute embarrassment to HMRC in the old days had been the IT shambles surrounding the tax credits regime – ideological brainchild of former chancellor and prime minister Gordon Brown. Reported losses from tax credit error and fraud had been massive.

Thankfully the government that succeeded him had staunched this haemorrhaging of public funds. The revised approach had involved merging income tax and national insurance, lowering income tax rates, and replacing tax credits with simpler social security benefits for those in genuine need. It had taken a brave political will to make it happen.

Despite changes in the name of the organisation, Tamara had been with the same employer for 35 years, save for a three year secondment at the Treasury. That had been a refreshing interlude, heading the complex virtual reality policy review, culminating in a new tax code that applied to transactions in or with virtual worlds. This had been necessary to take account of the huge influx of virtual business and its spin-off in the real world.

Third Life was a good example. Nearly 20 years ago, a few enlightened businesses had started delving gingerly into such virtual worlds – initially with low value advertising and sponsorship deals. Some had run recruitment campaigns or conferences to involve avatars and thereby grab the interest of their real life counterparts.

This had burgeoned into virtual franchises, substantial sales revenues, and legally binding contracts between avatars – with currency exchanges allowing real monetary implications. It would have been unthinkable not to extend the tax base to take these into account.

As in virtual worlds, there were also complex cross-border issues in the real world. Encouraged particularly by a series of OECD projects, there had been a huge increase in co-operation between tax authorities worldwide in investigating organised crime and combating unacceptable tax avoidance. Separately, in Europe, a common consolidated corporate tax base had been introduced and other moves towards fiscal harmonisation were afoot.

Earlier in her career Tamara had been involved with HMRC contact centres. While watching with some concern the development of successful expert systems for tax planning, Public Finance had employed a similar system dynamics approach to problem-solving in developing automated customer handling systems.

Automated guidance now offered online help to taxpayers and agents, replacing most pre-existing contact centres and helplines.

Some charities had expressed concern about the impact of technology on unrepresented citizens who were less IT-literate or otherwise vulnerable.

While these fears were heard with some degree of understanding, there was no such sympathy for tax agents.

It was recognised that tax practitioners owed a duty to their clients to keep abreast of all technology developments affecting the services they offered.

Meet the knowledge navigator – human or hologram

Turning the tables – tax office staff are also taxpayers

As a Public Finance employee, Tamara was also a taxpayer. Her contract had recently been revised and now, like more than three-quarters of her colleagues, she worked from home using IT systems bristling with advanced security features. Returning from a meeting, she pondered her tax position.

In the High Street, she found herself walking past a Public Finance micro-branch. She backtracked and glanced in the window. It looked inviting enough. Were there any financial consequences of her change of circumstance? Perhaps she’d better check for peace of mind.

She walked through the automated door and a holographic greeter intercepted her.

“Good afternoon. I am a knowledge navigator,” he said. “How may I assist you?”

When she explained her vague concern, he led her to a screen and asked her to describe her personal circumstances in response to onscreen prompts. A list of entitlements and obligations displayed.

Much of what Tamara saw was already familiar, but she learnt that she was entitled to a local authority subsidy on a home fuel cell – one of those new versions where a tank of plankton absorbs carbon dioxide and secretes oil. She recalled her childhood and those self-perpetuating ginger beer plants that used to do the rounds.

The screen provided advice for homeworkers who were owner-occupiers, explaining that there might be some wealth tax reliefs available, and possible capital gains tax implications if she sold up. She touched an icon to request advice from a specialist at the Public Finance contact centre, and immediately the face of a friendly looking tax official appeared. He suggested that they should have a short conversation in private.

Tamara was directed to a booth where she seemed to be looking through a window at the same tax man – it was a high definition video wall. Although it felt as though they were in the room together, she was not certain whether he was holographic or humanoid. Her retinal scan ID check completed, he talked her through her circumstances and concluded that there would be no extra tax liability to worry about.

“But,” he enquired, “would you like the small income tax refund from last year to be credited against your carbon-charge payments?”

As Tamara left, three other people entered and three separate holographic greeters welcomed them. She recalled public dissatisfaction with the old HMRC contact centres, and was impressed by how smoothly the micro branch seemed to operate without any human staff.

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.

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Donald Drysdale | tax

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