Paul Meissner explains some of the outcomes of the introduction of digital taxation (SBR) in Australia.
The UK accounting industry seems to have its fair share of major topics at the moment. None more so than Making Tax Digital (MTD). Even as an antipodean accountant I am are watching how (MTD) will impact the profession.
Digital tax is something us Aussies have some experience in. Australia has been a leading digital taxation jurisdiction with high cloud accounting adoption rates, so hopefully sharing a few of our ‘war stories’ can help you navigate the seemingly endless marketing hype and scaremongering.
The Australian tax landscape over the past 20 years has seen many MTD-like initiatives. I think sharing the Australian experience can assist UK accountants chart their course through the maze.
Here are some of the initiatives:
• 20 years ago the Australian Taxation Office (ATO) provided individuals with free tax lodgement software for personal returns. Some 98.2% of individual returns are now lodged electronically.
• 17 years ago the ATO provided accountants with free bridging software for electronic lodgement of GST (our VAT) returns.
• 10 years ago the ATO provided individuals with pre-filled data with which to populate their return, in the free online software.
• Nine years ago the ATO introduced Standard Business Reporting (SBR), which enabled cloud accounting software to connect directly to the tax office.
• Adoption rates of cloud accounting software in Australia/New Zealand have led the world.
In the 20 years of Australian taxpayers having free online tax software, the past 10 of those years with prefilled data, you’d be amazed to hear that both the percentage and amount of accountant prepared returns has increased.
Many in the marketing game will say “MTD is different, no one has seen this before”. I believe that Australia’s digital taxation initiatives, coupled with the deep cloud accounting adoption, provide a window in to the impact MTD will have.
Here are my five experiences from the digitisation of Australian Tax:
• Digital taxation is a data transition method rather than automation: MTD, as with Standard Business Reporting (SBR) in Australia, is the implementation of a process to report completed VAT returns. There is a vast difference between the data entry efficiency of cloud accounting software and ‘completed’ VAT returns. There is still a lot of value added by accountants when it comes to the complexities of VAT. Anyone who has worked on a client file knows we are still a little way off push button returns. Marketers love hype and I feel that MTD has been a convenient Trojan horse for scaremongering.
• The challenge of going cloud: This is an impact of MTD that really worries me for UK accountants. Having assisted over 3,000 businesses migrate from desktop to cloud accounting software I am acutely aware of the challenges both in the conversion of ‘dirty data’ from legacy systems and the training and change management involved in moving small businesses online. I say I’m worried because without proper pricing and control this kind of time-consuming work can have a really negative impact on the profit of small firms. Be careful, understand the clients’ needs, and for some digitally challenged clients bridging software might be an efficient method.
• The threat of automation or self-compliance: This is the classic scaremongering angle. Somehow the adoption of cloud systems that automate data entry will somehow magically learn how to apply tax law. For software still struggling with correctly reconciling invoices and bank transfers they are going to replace accountants… sure.
Compliance work has many parts, from data entry through tax minimisation and ‘compliance advisory’ work, to a delivered product to the client. Marketing types like to conflate the concepts of data entry and compliance being the same. We know it isn’t.
• More data equals more work: This is another interesting outcome of a digital taxation office and the expansion of data being collected. In Australia, our tax office has vastly increased their proactive communication around potential income. And greater data matching used to check returns lodged has led to reviews, audits and amendments of returns lodged. This increased query and activity increases the compliance work load of the accountant.
Tax is complex. Automation is the efficiency that accountants have needed to stem the flood of writing off time spent on data entry. It should be celebrated, considered and chased to find every last ounce of efficiency in our firms.
Digital tax initiatives are part of the accountancy roller-coaster, but now we have the added dimension of overactive marketing types hyping whatever they can. Don’t be swayed.
Australian accountants are riding a pretty sweet wave of compliance off the back of a digitally connected and data driven tax office. I’m sure the UK will too.
• Paul Meissner is the founder of Freedom Mentoring and a director of the 5ways Group
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