Q&A: Automating the tax function
November 2022 | SPECIAL REPORT: CORPORATE TAX
Financier Worldwide Magazine
November 2022 Issue
FW discusses tax function automation with Bruce Martin, Richard Sampson, Garry Young, Russell Gammon and Andy Myers at Tax Systems.
FW: Could you provide an overview of the shift toward automating corporate tax functions? What factors are driving this trend?
Young: There are many external pressures for corporate tax teams to contend with. On a global level, the tax digitalisation agenda means that an ever-increasing volume of data is being requested by the tax authorities, more frequently and within shorter timeframes. At the same time, there are internal factors too. For example, businesses expect more from their tax teams, such as for them to provide more strategic support and to effectively be business partners rather than just compliance specialists. This leads to increased workloads so, without automation, and tax function transformation, tax teams risk being stretched to breaking point.
Martin: Tax authorities are growing more sophisticated and are increasingly using technologies, such as machine learning (ML) and artificial intelligence (AI), to handle complex data sets. As such, they are challenging corporate tax returns in a manner not previously possible. This means internal corporate tax functions are being asked to do more by tax authorities and their own businesses, yet there has been little change to budgets to provide the required insights.
Gammon: HM Revenue & Customs sees the tax gap as a ‘war chest’ to go after. There is more than £30bn that HMRC should collect but does not, with the biggest cause of that being people failing to take reasonable care. A decade or two ago, this was understandable – technology was not able to help and the focus in tax was simply to ‘get compliance done’, by and large. We are already seeing HMRC being far less tolerant of poor use of technology, such as in the recently introduced Making Tax Digital (MTD) for corporation tax penalties, and that trend will only continue. Over time, therefore, we would expect a highly automated tax function to become the norm, rather than the exception.
Myers: Arguably, the biggest factor is the talent challenge. Today’s graduates who join a tax function have been schooled on a diet of apps, systems and technologies that just work – they often do not have an instruction manual. This breeds an expectation that technology in the workplace will be similarly connected and intuitive. Those of us who have been around large corporations for many years understand why these systems do not, in fact, connect. For example, mergers may have led to incompatible and competing systems that have never been resolved. But the expectation of the younger generation is right – systems should be able to interact, exchange data and be intuitive to use. No one wants to spend day after day re-keying data; they want to use data and see what it means.
Sampson: On the talent front, there are also fewer graduates moving into the profession. The attraction of moving into smaller, fast growing tech companies for graduates has never been more appealing. This is driving down supply and hence increasing the cost. Relying on people, rather than tech, to complete the work drives up costs. This could be make or break for some firms that are already at break-even. Compliance is used predominantly to win customers and identify opportunities to upsell, rather than to make money directly. That activity must stay cost effective and tech is the only answer in response to rising talent costs.
“The increased interconnectivity of apps and systems arises as a function of the move to the cloud and the associated architecture options.”
FW: How are technologies such as cloud, intelligent analytics and greater connectivity facilitating the automation of tasks in the tax function?
Young: It is a nuance, but these technologies are driving productivity in the tax function. It is mostly through automation, but not always. For example, the cloud increases accessibility, with users able to log in to a tax solution from wherever they are and whenever they want to, just by using an internet browser. With the cloud, support teams can resolve issues more quickly and prevent downtime by viewing a user’s screen remotely in real time, which helps them to identify and fix a problem.
Sampson: The desire to access applications remotely has accelerated dramatically in the post-coronavirus (COVID-19) remote working world. Collaboration is not only enhanced via internal users but also external users. This is creating new business models where corporate and advisory firms can work on computations collaboratively and simultaneously. This allows companies to look to co-sourcing as an option, rather than the historical binary choice of insourcing versus outsourcing. It is also an opportunity for advisory firms to differentiate themselves in a saturated market.
Gammon: Application programming interfaces (APIs) are key. If I am a software developer, I likely use three or four different providers for various parts of my work, but these products, from completely different vendors, are fully integrated. If they were not, writing software would be far less efficient. Sadly, at present in tax, solutions do not tend to be integrated, meaning there is a huge amount of repetition and replication which is not only tedious but can introduce errors. Bringing APIs into the world of tax will not only increase productivity but will fundamentally change the way that work is done.
Myers: The increased interconnectivity of apps and systems arises as a function of the move to the cloud and the associated architecture options. Providers that limit their product’s ability to link and interact freely with other systems are swimming against the tide. In turn, this connectivity allows automation and exploration of new options for tax teams who embrace the move to the cloud.
Martin: The big wins are around collaboration and data ingestion from source systems. Both of these greatly reduce the time needed for aspects of the tax function that do add value. Intelligent analytics can also help identify training needs in the tax team, for example, Jack taking 20 percent longer to do the same task as Jill, and uncover opportunities for operational efficiencies.
“Automation is all about removing the tedious, low-value tasks to allow skilled tax professionals to spend more time doing what they were trained for.”
FW: In what ways can analytics solutions benefit tax processes and improve efficiencies?
Gammon: Historically, tax has always been backward-looking – using data and calculations to tell a story about what has come before. Analytics can flip that and provide insight into what might lie ahead. Businesses are asking tax functions to change from being cost centres to being a team that drives business value. Tax teams have access to a huge set of data and are used to manipulating it for a variety of reasons. Going forward, we expect to see an ever-increasing use of analytics directed toward positive business outcomes.
Young: Advanced analytics can help companies to extract the story from the data faster, and provide a deeper understanding of how the numbers can deliver operational and tax strategy insights. With operational analytics, the tax team can better judge individual and group workloads, identify bottlenecks and so on. Tax analytics can help identify opportunities to optimise effective tax rates (ETRs), for example.
Sampson: With analytics, forward-looking tax teams can start to evolve from ‘reporters’ of the numbers to ‘predictors’, which enables them to provide strategic value to the chief financial officer (CFO) and the business as a whole. This supports the transformation of finance teams becoming strategic business partners.
Myers: Simply put, an analytics solution should add no more to the process than that already offered by a well trained and experienced tax manager. The tax manager should be able to spot the risks, discrepancies and opportunities within the end-to-end tax compliance process. But we all know the complexity of the tax code means that no one person can cover all aspects of the complex computations – firms must rely on deep specialist expertise to allow for the nuances of each sector. Analytics can help to provide that first pass risk review of the tax outcomes, to help highlight points that require deeper investigation. If well implemented, an analytics solution should be both a risk tool and a people multiplier.
“It is a nuance, but these technologies are driving productivity in the tax function. It is mostly through automation, but not always.”
FW: In terms of regulatory compliance, how can automation help the tax function to navigate an often rapidly changing legislative environment?
Gammon: Automation is all about removing the tedious, low-value tasks to allow skilled tax professionals to spend more time doing what they were trained for: to understand the tax legislation and ensure it is applied correctly to their business. Yes, technology can help humans digest large swathes of text more easily, but we must remember that automation within tax can only go so far – there is still a judgement and application that computers are not best placed for, at least for a generation or two to come. The right thing to do is get the computers to do what they are good at: augmenting the humans to focus on what they are best at.
Young: Automation can free-up tax function time to be better placed to keep on top of rapidly changing tax legislation. However, this new time should not be wasted trying to capture changes to tax rules in complex spreadsheets. Instead, opt for a digital tax platform where the tax calculators are kept up to date by the provider, so you know the calculations are always going to be correct.
Myers: The speed of legislative change can be overwhelming at times and complex in nature, so anything that cuts down that time to compliance must be worth examination. Reliance on internal expertise to navigate legislative changes might be sensible for smaller, single sector businesses, but for larger, complex and multi-sector businesses the overheads alone will preclude 100 percent coverage.
Sampson: It is worth calling out the volume of the change that has already occurred and that which is due to come. The more organisations can get a single, consistent view of their data, the better equipped they will be to respond to new legislation quickly and well in advance. Progressive organisations are not only looking to tick the compliance box when they have to, but incorporating new requirements into early business modelling, so decisions can be made to positively impact outcomes. Again, this is about planning and looking forward, not just retrospectively reporting the past.
Martin: Technologies such as natural language processing (NLP) enable computers to understand human language, which allows quick navigation of tax legislation but also backup documentation and tax case law, so tax professionals can reach accurate conclusions quickly.
FW: What considerations do companies need to make when evaluating potential automation tools and solutions on offer, to choose the right framework for their organisation? What essential advice would you offer to companies on leveraging automation to unlock tax efficiencies and innovations?
Martin: Companies must have staff with the right knowledge and experience to evaluate, implement and provide ongoing support to these systems. They also need to think of the wider ecosystem and all the partners they will be working with. Planning this ahead of pulling the trigger on one supplier will ensure the company has a well thought out plan. A three-year roadmap of this ecosystem will be crucial to ensure success.
Sampson: Companies should choose the application that best fits their business requirements, encompassing both current and future needs. This should incorporate connectivity and people should be wary of vendors offering multiple applications that are simply the result of M&A. A shared codebase will always give better long-term results.
Young: Cloud technology means that companies are no longer constrained to big, all-encompassing platforms that claim to do everything, but tend not to do it very well, and instead can opt for building an ecosystem of best-of-breed solutions. Also, companies should be realistic and recognise there are some limitations to automation technologies. For example, robotic process automation (RPA) should be part of the mix to eliminate manual and repetitive tasks, but if there are mistakes in the company’s underlying tax calculations, RPA will just generate the same wrong answer more quickly. Companies should also choose a software as a service (SaaS) solution, so that the provider is responsible for tracking changes to legislation and keeping the company up-to-date and compliant. Then, the company should make sure its technology platforms are API enabled, so it can evolve its tax ecosystem over time and take advantage of new innovations.
Gammon: Technology is only part of the picture. RPA alone will simply make an incorrect process quicker, not correct. Companies need to assess their processes, make sure they are right, then automate those parts where it makes sense to do so. Also, remember that outside of technology, there are talent considerations too. In the so-called ‘war for talent’, tax professionals can be hard to find, but you need them. There is no point having a high level of automation if there is nobody to process the output. Also, companies should continue to assess the market – there are more tax tech vendors popping up all the time, following a similar pattern to what we have seen in FinTech. Look at the market, but when thinking about tax, remember that some of the ‘table stakes’ – the functionality required to even consider purchasing technology – are quite high. For example, corporation tax returns are extremely complex in the UK, so companies need to make sure the vendor knows what they are doing. As much as a start-up might have some technology that looks good, companies need to make sure that start-up has tax expertise underpinning the tech and has not just strung together some logic in SQL.
Myers: Process should come first. Put more bluntly, why try to automate chaos? Automation tools and solutions must complement the underlying process and data flows; if those are unstable or unstructured, you are asking the automation tools to cope with that problem. Ultimately that will cost the company more money. Therefore, step one in any route to automation must be to understand the underlying processes, then renovate accordingly, and choose an appropriate automation solution which supports that new process.
“Relying on people, rather than tech, to complete the work drives up costs. This could be make or break for some firms that are already at break-even.”
FW: How should organisations begin the process of tax function automation? What steps should they take to overcome common hurdles and optimise the process?
Young: For a company that has built a business case and secured a budget, it will need to take a strategic, not tactical, approach. Automation should be viewed as a pillar of tax function transformation. For the best chance of success, this should be aligned with a company-wide transformation initiative – it needs an enterprise-wide approach. Automation is not just about driving efficiency and improving processes, but should also be seen as an opportunity to adopt new ways of working, and organisational change. There will be hurdles to overcome. One hurdle is being able to cater for rapidly changing regulatory requirements. Another is budget, as historically the tax function has been at the back of the queue for investments. Poor quality data housed in different systems is yet another, as the goal should be to achieve a single source of clean tax data. Finally, the skillsets of the tax team can be problematic, as some may not be open to new ways of working, reluctant to let go of treasured spreadsheets.
Gammon: It is not just about technology, it is about people and process too. Once you have those things sorted, technology can be put in place that can augment those and supercharge the tax function. All too often, people think tax function automation and RPA are the same thing – they are not. RPA is a tool to get a job done, but must be done in the right way, with the right context, to achieve results.
Myers: The most important point is data quality. Many data remediation projects simply flip from format A to format B, and along the way remove the unneeded inputs. Such processes are still remarkably commonplace and represent the largest monetary saving in most transformation projects.
“Companies must have staff with the right knowledge and experience to evaluate, implement and provide ongoing support to these systems.”
FW: Looking ahead, how will the remit of the tax function change with automation? What operational changes might we expect to see?
Gammon: Certain tasks will, over time, be consigned to history, such as spending a whole day in Excel checking value added tax (VAT) rates. Tax will move from being a cost centre to a value-generative unit, relied upon as part of many processes across finance and operations more broadly. Specific to operations, we have already seen the rise of the ‘tax technologist’ within larger organisations, and we expect to see that proliferate into the mid-tier over time. In addition, we often hear that ‘data is the new oil’, and with more and more regulation, a real understanding of data for tax is key. Indeed, the MTD for corporation tax mandate from 2026 onwards demands that data is considered for VAT and corporation tax together, rather than separately. We are likely to see the rise of the ‘tax data’ professional who will act as a custodian of data for tax. We have seen functions like ‘Sales Ops’ come to the fore in businesses over the last decade; perhaps we will see the rise of ‘Tax Ops’ down the line.
Martin: For less sophisticated businesses, the requirement for the tax function to undergo an automation transformation could result in other parts of the business seeing the benefits and creating a wider business automation revolution. For the tax function, I would expect this to be seen as a value creating function within the business and not just a compliance function.
Young: I would expect the remit to be redefined, moving away from ‘just’ compliance and reporting into a more strategic function. A lot of the compliance and reporting workload will be automated. This means that tax teams will provide advisory support to the business, for example in areas such as sustainability, supply chains, new business models and scenario analysis.
FW: What are the implications of automation for the role and skillsets of tax professionals?
Myers: Tax professionals are in a really good position to lead their accounting counterparts on the journey to automation. Tax often sits at the confluence of differing streams of data coming from different parts of an organisation – and often looks to technology to help solve that problem. The tax expert who understands how technology can solve their own or their clients’ problems is a hugely valuable resource. The expansion of tax technology over the last 10 years, especially in advisory firms, has already been significant, and has the potential to continue increasing for the foreseeable future.
Young: Tax professionals should see automation as an opportunity and not a threat. Automation can free them from boring, non-value-adding tasks to spend more time on more interesting work, getting closer to the business and analysing data. Skills in data analysis will be valued, and tax leaders should focus on enhancing their team’s advisory and partnering skills.
Martin: The ability to move away from the fear of human error and mundane tasks, such as data input, allows tax professionals to focus on the value they can deliver by identifying opportunities in tax planning for their businesses. Automation brings a significant opportunity for tax professionals.
Having joined Tax Systems in 2021 as chief finance officer, Bruce Martin has progressed to managing director and now chief executive, overseeing a period of major technology-focused innovation for the organisation, while delivering excellent financial results and maintaining impressive growth. He is spearheading Tax Systems’ ambition to become a pure SaaS provider in the next 18 months and capitalising on the significant expansion opportunities this will present for the organisation. He is highly experienced in owner-managed, high-growth private equity backed and FTSE 100 TMT businesses. He can be contacted on +44 (0)1784 777 700 or by email: bruce.martin@taxsystems.com.
Richard Sampson has 25 years’ experience in sales, marketing and commercial leadership, of which the last 15 years has been working closely with finance applications and tax transformation. He has held leadership positions at Thomson Reuters, insightsoftware and is currently chief revenue officer at Tax Systems, where he is supporting the business to create a full SaaS compliance platform. He can be contacted on +44 (0)1784 777 700 or by email: richard.sampson@taxsystems.com.
Garry Young is head of product marketing at Tax Systems. He has over 25 years’ success in building product marketing strategies to deliver profitable revenue growth and competitive advantage for global technology, services and financial companies. He specialises in creating commercial best practices to deliver GTM success through value proposition development, sales enablement, product awareness and globalisation of portfolios. He can be contacted on +44 (0)1784 777 700 or by email: garry.young@taxsystems.com.
Russell Gammon has worked in the field of tax technology for 13 years, having started his graduate career at Deloitte in 2008. Since then, he has gained 10 years of Big 4 experience, spent some time at a start-up and has been with Tax Systems since May 2020 in the roles of chief innovation officer and most recently chief solutions officer. He is passionate about building products that improve users’ experiences, while ensuring that they meet the high-quality Tax Systems is known for. He can be contacted on +44 (0)1784 777 700 or by email: russell.gammon@taxsystems.com.
Andy Myers joined Tax Systems in late 2021 as chief product officer, following six in a Big 4 accountancy firm, during which time he was responsible for its centralised tax compliance centre. Prior to this, he worked in investment bank operations as a chief operations officer, which followed a long career in the RAF. He can be contacted on +44 (0)1784 777 700 or by email: andy.myers@taxsystems.com.
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