Technology is changing tax: five tips to stay on the right side of HMRC

Tax is one of the biggest costs that individuals or businesses face. Like it or not, it pays to keep on top of your tax affairs. A key part of Labour’s fiscal strategy is to ensure HMRC has the resources to collect more tax revenues. As James Murray, Exchequer Secretary to the Treasury, stated in Parliament before the summer recess, the government will "invest in HMRC’s technology infrastructure, helping to make HMRC more efficient and improve taxpayers’ experience of interacting with HMRC".

As we enter the "age of artificial intelligence (AI)", technology is beginning to impact the way in which governments around the world collect tax like never before. Whilst the UK is approaching this change at a slower pace than some other countries, keep an eye out for technology related announcements in Labour’s first budget since being elected – on 30 October.

Our predictions for the impact of technology on how everyone pays their tax are set out below. Depending on your viewpoint, these present both an opportunity and a risk to how tax is paid and administered.

• Increased state role in personal finances: The ongoing Making Tax Digital initiative increases moves towards real-time access to taxpayer information for HMRC. Future tax administration systems may link in with bank systems to pre-calculate and collect tax with each transaction, significantly altering our financial relationship with the State. 
• Tax filings may feel more like annual insurance renewals: More connected technology could mean tax is collected closer to the point income is received or recognised, with online accounts and annual "true-up" reviews replacing traditional tax returns.
• Tax education in schools: Errors and mistakes are the leading component of unpaid tax and the "tax gap". Experts increasingly suggest including tax lessons in the national curriculum to reduce errors and improve awareness of tax.
• Upgrading systems: Many businesses will need to upgrade outdated computer systems to connect with HMRC in the near term. This digital accounting revolution will require significant investment, potentially impacting growth and investment by taking time and resources which could have otherwise been focused elsewhere.
• The robots are coming: Following on from internet banking, we can expect to see more accounting firms using online client portals for secure and efficient communication with their clients. Whilst this may lead to a growth in firms offering "self-service" or "automated" tax advice powered by AI, most sources of tax advice will retain an element of human review, with professional advisers offering their clients the option to have a personal connection to a named tax professional. HMRC will need to take care though as this recent case, involving its webchat service being cut off, highlights that HMRC technology issues could have an impact on the penalties it can charge.  

With all this in mind, here are five tips to stay ahead of the game as technology inevitably impacts how your tax is paid.

1. Education, education, education: Knowledge is power, and a basic appreciation of how the tax system works can transform your experience with HMRC.
2. Register for an HMRC personal tax account: These accounts show the information HMRC uses to assess your tax liability and provide guidance links.
3. Be proactive: Conduct a review, at least annually, of your tax compliance position to plan filings and take advantage of tax reliefs.
4. Make a personal "data map": Ensure you understand where the information you need to calculate your tax liabilities comes from, that it’s accurate and as easy to compile as possible.
5. Seek professional advice for complex matters: The UK tax system is complex. Professional tax advisers can help you manage your tax affairs and will increasingly build knowledge on how to use AI and other technologies safely when it comes to obtaining tax advice.

Ensure your adviser is reputable and supportive. Look for those with links to relevant leading professional bodies, such as the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales and the Association of Taxation Technicians.