Automation and AI: bringing tax into the 21st century

Russell Gammon at Tax Systems describes how robotic process automation (RPA) and artificial intelligence (AI) will transform the way that companies calculate and report their tax liabilities

 

From healthcare to welfare, the government is spending billions every year upgrading its huge legacy IT infrastructure and introducing new online services. This digital transformation is seen as essential if public sector departments are to remain relevant and accessible across our connected society.

 

Digital transformation is also about making the public sector more effective, driving cost savings and eliminating old inefficiencies. Among the current crop of wide-ranging initiatives is Making Tax Digital (MTD), described as “a key part of the [UK] government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.”

 

From April this year, the MTD rollout extends to VAT when it becomes mandatory for all VAT-registered organisations and businesses with taxable income above the £85,000 threshold to submit returns online. This will replace the existing system whereby most organisations under the £85,000 threshold relied on Excel spreadsheets and formulas to calculate their returns.

 

Clearly, HMRC sees this as an important step in ensuring businesses get their VAT calculations right. It also gives them the opportunity to more closely scrutinise and compare organisations, and by conducting more targeted investigations, make better use of their resources.

 

But MTD isn’t just about HMRC flexing its technical muscles. It should also give businesses additional impetus to broaden their use of innovative technologies, with Robotic Process Automation (RPA) and Artificial Intelligence (AI) solutions offering some major advantages.

 

Take RPA, which is a type of business process automation where software robots handle high volume, repetitive and rule-based tasks. Used across a variety of industries, from banking and insurance to healthcare, telecoms and finance, it can deliver benefits ranging from staff and operational efficiency to cost reduction and improved customer service.

 

It’s a niche of the technology industry that is seeing significant investment and growth, and is expected to accelerate from just over $3 billion in global revenue this year to around $13 billion by 2030.

 

It is already widely used across tax functions within many of the top accountancy firms and much of the FTSE 100. In particular, it has been implemented to replace administrative copy-and-paste tasks of simple to medium complexity that had previously been carried out by employees using Excel spreadsheets.

 

For instance, large organisations that operate hundreds of legal entities might need to perform the same tax reporting and calculation task for each one. Carried out manually, it is a time-consuming process, and for those with the job of doing it, dull and repetitive. It’s perhaps unsurprising therefore that RPA has become a ‘go to’ option for organisations who use it to reduce a process that used to take many hours into something they can complete in minutes.

 

It’s not without its challenges and limitations, however. RPA will allow finance teams to make the same mistakes they’ve always made but, with the disadvantage of doing so a lot quicker. This means that if a tax process already has mistakes in calculations, it won’t fix them or even spot the errors; it will just continue to apply a flawed process at extreme speed.

 

Effectiveness and engagement

The positives, however, far outweigh the pitfalls. For employees – often graduates – who have generally been given those manual, repetitive processes to complete, RPA will free them from the monotony so many have experienced over the years, enabling them to engage in more meaningful work.

 

Then there’s compliance, where companies expend huge amounts of time and resources, with perhaps only 10% allocated to uncovering insight and giving advice. In this scenario, effective RPA will allow organisations to get more out of their valuable human resources.

 

This comes at a time when finance teams are being placed under increasing pressure. According to Deloitte, 93% of tax functions expect to be given the same or less budget over the next three years. With many tax teams currently spending the vast majority of their time doing returns and addressing compliance, that’s a tough ask.

 

This is where AI is also set to make a meaningful impact. While not currently as prevalent among finance teams as RPA – a small percentage of the FTSE 100 have invested in AI solutions compared to the majority that are already using RPA – it will play an increasingly important role in decision-making.

 

Corporation tax is a good example. Every time an employee or business incurs an expense, a finance professional needs to make a decision about whether it’s allowable under corporation tax or not. Most are easy decisions and can be made effectively by a computer because if something has happened 1000 times, AI can make similar decisions in similar situations.

 

Again, this falls into the category of business efficiency and ensuring highly trained employees are dealing with tasks appropriate to their skillsets. Think of it this way, where’s the value in having an employee make the same decision 1000 times or more?

 

One of the large professional services firms, for example, augments its existing decision-making processes with AI, reducing a five-hour process to a little over five minutes. And while there is a long way to go in fully realising the potential of AI across finance in general or tax in particular, this illustrates the potential technology innovation has for improving major business issues from efficiency to engagement.

 

In any modern digital society, directing investment to deliver greater value for money, while also improving the working experience for thousands of people, has to be seen as a win-win. Where tax is concerned, these are developments that are long overdue.

 

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Russell Gammon is Chief Solutions Officer at Tax Systems

Main image courtesy of iStockPhoto.com