A digital future for tax advisors
By Clare Fitzgerald
The tax system is constantly changing and increasingly complex and so is the world of work for tax agents. The workplace is also a rapidly developing environment and recent times have seen some of the biggest changes than ever seen before. Clare writes on the digital economy and what this means for tax advisors
Today’s world is a constant moving platform as digitisation reshapes the landscape that accountants and tax advisers now work in, technological advancements mean job roles are changing and new challenges are being faced daily.
Tax advisors are finding themselves having to up skill to keep in touch, learn new skills and develop new technologies to support their clients.
We are on the road to changing the profession to a digital environment.
Digitisation and HMRC
HMRC have recently made a number of changes to the way we report taxes particularly with the introduction of RTI as far back as 2012 and the recent introduction of Making Tax Digital for VAT in April 2019. It is a widely known view that HMRC aims to create a fully digitised tax system across all taxes in the near future. This will give HMRC the ability to drill down digitally into a taxpayer’s source data to verify that the correct tax treatment has been applied.
The potential benefits of digitisation for the tax authorities are clear but there are significant challenges involved with creating the technology needed for HMRC to gather the data effectively. The Office of Tax Simplification (OTS) recently published its Technology Review: a vision for tax simplicity.*** The aim of this review was to question how the use of technology can achieve a “simpler and better user experience”
The report identifies that technological developments such as artificial intelligence can do more work for tax payers and tax advisers but it also highlights the risk that taxpayers may disengage from their responsibility for their tax affairs. It highlighted that more consideration needs to be given to how taxpayers interact with the system and how new technologies can enhance the users experience and understanding. The OTS remain committed to further work on the role of technology in tax simplification but it is clear that digital transformation presents both positive and negative consequences for HMRC, the taxpayer and their tax advisors.
Digitisation in the workplace
A number of arguments exist for the value added by digital technologies to the world of commerce today, particularly in terms of increased flexibility, the development of global business models, and the organisation of work.
Considering the ever-increasing opportunities in the employment marketplace, the advancement of technology helps promote changes in work practices such as growing flexibility in the place and timing of work. This flexibility is becoming an increasingly important component of any prospective employment package, employees feel that flexible and remote working is a huge benefit. Not having to complete the daily commute, aiding with childcare arrangements and so forth are high on the priority list.
Cultural, economic and social changes are all having an impact on how employees organise their home and work life, increased flexibility, mobility and technology is removing need for traditional 9–5 office job.
Digitisation has enabled this to happen. Recent surveys carried out have indicated that the number of employees benefiting from remote working has increased by 20% in the last 10 years. That’s nearly a quarter of a million more people working from a location other than their normal place of work.*
Government research indicates that there could potentially be another 4 million workers who would benefit from working at home for at least part of their job but their employers are not offering the benefit. Working from home has allowed disabled people more access to the marketplace. Studies show that 160,000 disabled people currently able to work from home.*
Companies have needed to adapt, trust and develop targets for their workforce which enables them to work in their own time, all the while making sure that the company objectives and milestones are being achieved along the way.
Simple things like the development and increased capability of the smart phone and increased usage of such devices have meant that employees can now access emails and important documents easily and on the move. The use of smart phone apps for business has increased two fold over the past 5 years.
Digitalisation of the workplace has presented business leaders with a challenge to try balancing levels of employee morale and stress. While the benefits of digitisation can be enjoyed, some have found the drawdown to be an endless cycle of work without respite. Employees are finding they may be working longer hours. A recent report found that managers are now working on average an extra 29 days a year, unable to switch off from their mobiles and suffering a rise in levels of stress.**
Governments are constantly moving to legislate to protect data especially in this digital environment. In 2018, the GDPR rules came into force, affecting the way that all EU citizens’ data is used. This is a significant burden and risk for businesses to ensure they meet all of the regulations requirements especially when the data is held off site.
For businesses working with customer data, it has become imperative to work towards appropriate international standards in information security, such as ISO 27001, a framework which lays out how personal records and commercially sensitive information is kept safe.
Digitisation in the world of recruitment
Many large businesses are already using digital forms or psychometric tests, as a first layer in their recruitment process with potential candidates while interviews via webcam are also becoming much more common.
Education is being geared towards preparing candidates for the modern workplace, but challenges remain. Technology is now affecting all areas of our lives, meaning that digital skills are a must have. Schools now need to be able to provide cutting edge technology to prepare young adults for a digital future.
From hi-tech Companies to high street shops, all businesses need to embrace the digital workplace. As companies innovate, automation will increase, technologies such as artificial intelligence will improve, and connectivity across video, virtual reality or augmented reality will change the way that people communicate.
The digital world and tax legislation
This period of digital transformation is an incredibly exciting time for the innovators of our world.
We have already seen the huge growth of tech firms in recent years, this poses problems for the taxation of these companies that are operating on a global scale.
The Conservative Party having recently received a crucial parliamentary majority in December 2018 election, now looks likely to push ahead with their Digital Services Tax meaning that the government will levy a 2% tax on the revenues of search engines, social media platforms and online market places which derive value from UK users.
Businesses will be liable to Digital Services Tax when the company/group’s worldwide revenues from these digital activities are more than £500m and more than £25m of these revenues are derived from UK users. The first £25m of revenues derived from UK users will not be subject to Digital Services Tax.
Revenues are derived from UK users if the revenue arises by virtue of a UK user using the platform. However, advertising revenues are derived from UK users when the advertisement is intended to be viewed by a UK user.
Businesses will be able to elect to calculate the Digital Services Tax under an alternative calculation under the ‘safe harbour’. This is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a low operating margin from providing in-scope activities to UK users.
The international corporate tax framework is underpinned by the principle that the profit of a multinational group should be taxed in the countries in which it creates value however under the current international tax framework, the value a business derives from user participation is not taken into account when allocating the profits of a business between different countries. The new measure will ensure that large multinational businesses make a fair contribution to supporting the public services of the local economies they operate in.
In particular HMRC have stated “The application of the current corporate tax rules to businesses operating in the digital economy has led to a misalignment between the place where profits are taxed and the place where value is created. In particular, many of these digital businesses derive value from their interaction and engagement with a user base.”
The G7,G20 and OECD are currently in discussions around reforming the international corporate tax rules around digitisation however UK and France are introducing their own tax legislation as an interim measure as they feel that not enough is being done on the international front and that a solution is taking too long to find.
At present, there are calls for the introduction of the tax to be halted in the UK. US officials have stated that the tax could unfairly target US based tech companies such as Amazon and Apple and are warning that tariffs could ensue if it is implemented. However UK Chancellor of the Exchequer, Sajid Javid, speaking at the World Economic Forum in Davos, has reiterated his intention that the tax will go ahead in April 2020 and will be ‘considered a proportionate tax’ and would be repealed in the event of the introduction of a global solution under the auspices of the OECD.
Whatever the outcome it seems likely an exciting, digital future lies ahead for everyone.
* https://www.mirror.co.uk/news/uk-news/working-home-soars-15million-people-8008210
** https://www.managers.org.uk/insights/research/current-research/2016/january/quality-of-working-life
Clare Fitzgerald Tax Associate Director with Grant Thornton
Email: Clare.Fitzgerald@hotmail.com
