Governments worldwide must ensure the integrity of their revenue system. While there are many strategies governments can use to do this, many are choosing to focus on investigations. More specifically, high-net-worth individuals (HNWIs) are under the microscope, not least because these investigations make the biggest headlines. In the UK, data shows increases in income from tax investigations. For HMRC, technology plays a vital role in examining the tax affairs of the wealthy.
Let’s look at what is happening and how to prepare for a tax enquiry. In this post, we’ll cover:
HMRC & The Current Tax Gap
Like all governments, the UK Government wants to ensure the right amount of tax is collected and paid. Governments regularly monitor and investigate tax gaps to ensure they don’t grow too big.
In the UK, the Government publishes the annual Measuring Tax Gaps figures. In recent years, the gap has remained at an all-time low. The latest available figure is for the tax year 2021/22, showing the gap stood at 4.8%.(₁) Compare it to the tax year 2005/06, when the gap was at 7.5%, and you could argue that the UK government’s efforts have borne fruit.
However, the picture tells a different story when you consider the gap in monetary terms. Estimated tax liabilities have increased in recent years, leading to increases in the difference. In 2020/21, the difference stood at £31 billion, which rose to £36 billion for tax year 2021/22.
Measuring the tax gap is complex, and many have differing views on the current estimates. Arguments against the Government’s figure highlight a lack of focus on the shadow economy or tax avoidance schemes. Indeed, HMRC is notorious for its complex tax laws, so the methodology of considering what is owed is often challenged. It’s worth noting that even HMRC revises its figures after initial estimates.
But who’s to blame for the tax gap?
HMRC’s latest findings suggest the following:
Small businesses represent the largest proportion of the tax gap at £20.2 billion (56%).
They are followed by criminals, large businesses, and mid-sized businesses. They each account for 11% (£4.1 billion, £3.9 billion, and £3.8 billion, respectively).
Wealthy individuals account for 5% (£1.7 billion).
With that in mind, what are the authorities doing to close the gap, and why is the focus increasingly on the wealthy?
HMRC & Closing the Tax Gap
HMRC uses different strategies and tactics to close the tax gap and recover more of what it owns. These efforts include:
Improving tax compliance
Investigations into businesses and individuals
Educational measures to improve
Enhancing tax regulations and tax filing efficiency
But in recent years, much focus has been on the investigatory route. HMRC is investigating wealthy individuals and small businesses to fill in the gaps. Research also shows they have gotten better at it over the years.
Tom Wallace, Director at WTT Consulting and a Tax dispute resolution & HMRC litigation specialist, shared intriguing data on HMRC’s investigatory money.(₂) Research shows the following:
For every £1 spent to investigate small businesses, HMRC recovered £12.
For every £1 spent on investigations on HNWIs, HMRC recovered £30.
For every £1 spent on large companies, the team recovered £58.
HMRC has recovered more from wealthy individuals despite not being the most significant contributor to the tax gap. The focus on the wealthy isn’t a coincidence.
HMRC’s website states that wealthy individuals may present a higher risk because their tax affairs are often global and more complex. Hence, they are at the forefront of the effort to close the tax gap.
HNWIs at the Centre of the Investigatory Focus
Let’s dig deeper to see what the investigatory focus on HMWIs looks like in action.
Initially, you may question whether the wealthy are the focus of HMRC’s efforts. Research by the Bureau of Investigative Journalism and TaxWatch recently reported a drop in cases to investigate specific instances related to offshore and wealthy cases.(₃) While the cases did fall from 1,417 in 18/19 to 627 in 22/23, fluctuations in case numbers have always happened.
There are many reasons why case figures alone don’t tell a complete story. You need to remember that:
Cases can take years to conclude; therefore, new cases opened in a particular year don’t always show the whole truth.
The COVID-19 pandemic paused or delayed many ongoing and future investigations. Many operations are only now returning to normal.
When asked about the recent drop in cases, HMRC’s spokesperson told The Guardian that “we still have more than 300 people under criminal investigation as part of our work to tackle the wealthiest and most sophisticated offenders”.(⁴)
However, from a broader perspective, you can see that HMRC’s efforts towards wealthy individuals have increased over the years. The special unit is a prime example.
HMRC’s Wealthy Team works as part of the wider Customer Compliance Group. The team deals with cases involving wealthy individuals, which HMRC defines as people who:
Have an income of £200,000 or more, or
Assets equal to or above £2 million in the last three years.
The team’s staffing budget increased from £13.6 million in 2016/17 to £27.1 million in 2022/23. The significant increase shows HMRC believes investigations into the wealthy can be beneficial.
The investigations have the opportunity to yield a lot of money. The recent Bernie Ecclestone investigation brought in £652.6 million in tax and penalties.(⁵) The investigations can create big headlines, which can help HMRC’s overall image with the general public.
How do HMRC’s Investigations of the Wealthy Work?
HMRC currently employs strategies to ensure that wealthy individuals pay the correct tax. Their toolkit includes:
A cooperative approach through educating and supporting clients.
Compliance checks to ensure taxes are paid correctly.
A risk-based model that uses high-quality intelligence data and checks carried out by HMRC caseworkers.
Customer Compliance Managers are assigned to special customers based on the case’s complexity or the HMRC’s deemed opportunity for non-compliance.
High-Risk Wealth Programme that accelerates the resolutions for the most complex cases.
Fraud Investigation Service and Counter-Avoidance to handle tax avoidance schemes and offshore disclosures.
Alternative Dispute Resolution deals with the most complex disputes.
HMRC’s High-Risk Wealthy Programme (HRWP) is a significant tool for these units. It investigates wealthy individuals and accelerates tax disputes in the most complex cases.
The cases under HRWP typically have a significant amount of tax at risk. Clients can request their cases to fall under HRWP, but the decision is up to HMRC.
The HRWP team seeks to resolve disputes collaboratively. Cases typically end with a settlement. If HMRC suspects tax evasion, the Fraud Investigation Service examines cases.
The special unit uses various techniques to investigate. In recent years, all eyes have been on HMRC’s Artificial Intelligence program, Connect. Launched in 2010, the system recovered over £3 billion of additional tax revenue.
As we mentioned in our LinkedIn post, Connect uses over 30 databases in its investigations.(⁶) The databases include tax returns, credit and debit card accounts, and flight sales. HMRC uses Connect to connect the different pieces of data, creating a trail of evidence they can use to check against your tax record.
For example, if you claim in your return that you have spent less than 80 days in the UK, Connect could look at data from social media or credit card reports. If these place you in the UK for more days, they might launch an investigation.
Strategies to Prepare for a Tax Investigation
HMRC’s attention has turned towards the wealthy. With the increasing use of technology as a tool to launch investigations, the time is now to focus on preparing your tax affairs. The question for many shouldn’t be about if they’ll face an enquiry but when.
An excellent way to start is by understanding the reasons for tax gaps. HMRC’s investigations show the main behavioural reasons for the tax gap are:
Failure to take reasonable care 30%
Error 15%
Evasion 13%
Legal interpretation 12%
Criminal attacks 11%
Non-payment 9%
You could minimise the likelihood of an enquiry by taking due care and limiting errors. A better understanding of your tax compliance issues is an advantage.
There are three key stages to focus on: before the investigation, during it and after. Let’s look at the core mitigation aspect for each step.
Before an Investigation
Preparation is the best way to deal with an enquiry. You need to understand that an investigation is likely. In 2016, HMRC’s report stated that it is running a formal enquiry on around a third of HNWIs.(⁷)
You should talk to your tax advisor and get a clear understanding of your current situation. Focus on strengthening your record-keeping. Technology can help make it easier to stay on top of complex issues such as day counting.
Understand the information HMRC can ask for. They can seek information and documents, including bank statements, invoices, and receipts.
Remember that HMRC uses technology like Connect to examine your affairs. The tax authority has the means to investigate your social media and even flight details. Therefore, you must ensure you can back any claim you make in your tax return—such as how many days you spent in the UK.
During an Investigation
If HMRC opens up an enquiry, you should take a deep breath. These enquiries can happen to anyone and aren’t a sign that you’ve done something malicious.
You don’t want to ignore the issue. Inform your tax advisory team and lawyers and start building your case together. Understand what HMRC is asking for and clear any confusion you have at this enquiry stage.
While you want to ensure you respond to HMRC’s enquiries as quickly as possible, remember your rights. You don’t need to agree with everything they say, and you have the right to challenge their requests. Always talk to a professional team before making decisions or passing any information.
After the Enquiry
Once the enquiry is over, take a moment to review the whole ordeal. While it can be tempting to move on and put it to rest, enquiries can help you better prepare for the future.
Whatever the outcome of the enquiry, it’s crucial to consider what might have prompted it. The knowledge can help you be better prepared for the next time. Remember that getting past one enquiry doesn’t mean the authorities couldn’t look into your affairs again.
Navigating HMRC’s Investigatory Landscape
We at Daysium believe technology is vital at each stage. You can use tax technology to:
Strengthen your record-keeping to prepare for enquiries.
Enhance communication with your tax team and the authorities during an investigation.
Reduce complexity and uncertainty around your tax compliance for the future.
The regulatory landscape is changing. Adopting the right tools allows you to be at the forefront of the change. The goal is to ensure you take care of your tax liabilities and create a strong trail of evidence to support your case. Ultimately, this will benefit all stakeholders.
If you want to transform your tax compliance journey with Daysium, the fastest way to get started is via a Partner. You can check if your tax advisor is already part of our growing Founding Partner Network – if not, ask them to take our Scorecard Assessment and become part of our ever-growing group of experts.
Schengen Travel: What to Know about Visa-Free Travel Post-Brexit
British citizens’ free movement rights ended when the Brexit transition period expired on 31 December 2020. However, British people don’t need to apply for a visa for a short visit to the Schengen area.
What does post-Brexit travel in the Schengen region look like, and how can you calculate your day count for tax purposes? In this article, we’ll go over the following topics:
Understanding Schengen Visa Basics
You can travel to the Schengen Area with a Schengen visa. Different types of visas are available, and we will cover them briefly below.
What is the Schengen Area?
The Schengen Area is a collection of 27 European Economic Area countries, with Bulgaria and Romania joining partially on 31 March 2024.
The area differs slightly from the EU; not all EU countries are part of Schengen, and some non-EU countries are. The name comes from a town in southern Luxembourg. France, Belgium, Germany, the Netherlands and Luxembourg signed the original agreement in the town in 1985.
Please note that visa-free travel applies only to the European territories of France and the Netherlands. Their overseas territories, such as Martinique or Aruba, are not under the Schengen Area.
Types of Schengen Visas
There are three different Schengen Visa categories in use today. These are:
Type A: Airport transit
Type C: Short-Stay
Type D: National Long-Stay
The Short-Stay Visa is the most common. The visa allows the holder to stay in the Schengen Area for 90 days in any 180 period. You don’t need to apply for this type of visa if you’re British. Many other countries have similar agreements. However, citizens from some countries may need to apply for a short-stay visa.
If you plan to live or work in a Schengen country for up to a year, you need to apply for a Type D visa. The application requirements differ from country to country.
The 90/180 Rule
The 90-day rule, or the 90/180 rule, is one of the most critical elements to understand about travelling in the Schengen area. The rule limits your travel to the region to a maximum of 90 days in any 180-day period.
The rolling basis for calculating the 180 period is vital to understand the rule.
What does ‘on a rolling basis’ mean?
The 180-day rolling period doesn’t need to correspond to a calendar year or any other fixed timeframe. Instead, you must look back at the previous 180 days to determine how much time you’ve spent in the Schengen area.
The 90 days also don’t need to be consecutive. You can spread them out over the 180-day period.
After you’ve spent 90 days within 180 days in the Schengen Area, you must leave. You can return once you’ve spent enough time away to be eligible to stay for another 90 days.
The day count starts from the first day of stay and ends on the last day of stay. The time of your entry and exit doesn’t matter. You could arrive in the Schengen area at 10pm on 4 March, and the day would count as your first day towards the limit.
The detail is significant, as countries sometimes have different ways of determining what counts as a ‘present’ day. We’ve written about the complexities of deciding a day for residency and day count purposes, if you want to learn more. You can read more about it here.
But in the Schengen Area, your 90 days start at the entry date and end at the exit date, regardless.
Case Study: 90/180 Rule in Action
Let’s say you were in Belgium for three weeks in early November. You returned to the UK for a month before you decided to go Christmas shopping in Milan for a weekend with the family. You greet the new year on a ten-day holiday in Marbella.
For February, you take the family for a seven-day skiing trip in Austria – not to forget the two days spent in the Netherlands at a conference.
If these are your only Schengen trips, you are within your limit. You’d have spent 43 days in the region – well within your maximum.
However, you start planning a trip to Germany at the end of March and early April. You might think you haven’t been in the Schengen area in a long time. Surely you could spend as much time in Germany as you want – maybe even visit your friends in Switzerland? You must calculate back 180 days from when you intend to land in Germany to be certain.
Let’s say you’re thinking of going to Germany on 1 April. If you count 180 days backwards, you’ll end up all the way back on 5 October 2023. However, your start of the 90 day period begins on 3 January 2024. If you land in Germany on 1 April, your stay may be authorised for up to 68 days.
Brexit’s Impact on Schengen Visa Rules
After Brexit, all UK citizens fall under the 90/180 rule for short stays in the Schengen area. You won’t need to apply for a visa for these short stays if you’re:
Staying for 90 days or less in the 180 rolling period.
Visiting as a tourist.
Travelling for business, such as attending a business meeting or conference.
Travelling for media activities.
You may require a visa for certain work activities. Always check the rules of the country you’re visiting when travelling for work.
The visa-free short-term visits cover all British nationals, including:
British Nationals (overseas)
British Overseas Territories Citizens
British Overseas Citizens
British Protected Persons
British Subjects
However, the exemption doesn’t cover non-EU family members of British citizens. Any non-EU family members and non-Brits should check if they are subject to visa requirements.
What are the Penalties for Overstaying?
Each Schengen area has its own set of standards for penalties for overstaying. You’ll typically be issued a fine and an order to depart the country (if you’re still in the area).
The fines may only be an inconvenience. However, non-compliance with the 90/180 rule could result in future difficulties. You could have issues entering the Schengen Area in the future.
You must also consider any tax implications arising from overstaying. Overstaying or breaking the rules can leave you exposed to local tax laws.
Calculating your Day Count in the Schengen Area
How to stay on top of your day count in the Schengen area? You could consider the traditional day-counting tactics. However, the conventional methods have a few problems we want to solve at Daysium.
Let’s consider the most obvious example: online calculators. The European Union has a calculator, along with a plethora of websites with various takes on logging your days.
The calculators work by allowing you to enter your travel days and even planned travel days. They’ll provide a day count on how long you’ve spent in the region.
The problem? You have to take the time to visit the website and accurately remember your past travel days.
Logging data this way takes time and effort. Manually inputting dates also comes with the risk of inaccurate information.
Alternatively, you could turn to a few other mobile apps. The apps calculate your days for you, similar to online calculators. The apps might once again rely on your input.
Some offer further help by logging in the days using information from your phone. They might draw on geotagging or dates from your travel itinerary in your email.
The apps can provide a real-time account of your days that’s easier to access. But the apps miss a crucial aspect: personalised day counting. You don’t receive support related to your day counting requirements. You also don’t receive supporting evidence to present to tax authorities in the event of an enquiry.
We’re convinced of a better way.
The Daysium Way to Day Counting
Daysium wants to help you stay on top of your day counting when travelling in the Schengen area. Our platform enables you to automatically log your travel information, including supporting evidence.
More importantly, you can personalise the platform around your requirements. Our platform knows the ins and outs of local tax laws, including what counts as a day for tax purposes. If you have concerns, you can check for answers with our AI advisor, Daysi.
We’re more than just an app to count days.
As a globally mobile HNWI, you’re under increased scrutiny by the tax authorities. Governments worldwide are increasingly interested in the tax affairs of the wealthy. They want to ensure HNWIs are compliant and paying the correct tax.
An investigation of your tax affairs can be time-consuming and complex, even when there’s nothing to see.
With Daysium, you can prepare for these situations. Our platform expedites compliance and builds credible proof to back your day count. You can add geotagged pictures, location data, and receipts. These can smooth the enquiry because you can provide the authorities with all the proof your day count is correct.
The Bottom Line
Brits should understand the Schengen Visa rules in the post-Brexit world. On paper, the 90/180-day count seems simple enough. But calculating and staying on top of the day count can be tricky. If you want to guarantee you’re aware of the latest regulations and your personal day count, the Daysium platform can help.
The Emotional Toll of an Enquiry – A Blog by Paul Aplin OBE
Tax advisors and clients often consider the time and cost of tax enquiries. But Paul Aplin OBE, our senior tax advisor, shares insights into another vital side of tax enquiries: the emotional toll.
With a career that has spanned almost forty years, Paul has dealt with many enquiries in his time. His insights offer an important lesson for anyone facing uncertainty: preparation and open communication go a long way.
Untrained
Professional exams prepare you well for handling the technical aspects of tax enquiries. Practical skills are acquired through experience over many years. There is, however, generally little or no training for handling the psychological impact, yet this can be the most difficult aspect to deal with and the one that sticks in the mind long after the enquiry has ended. It is rarely, if ever, written about.
The Client’s Perspective
Some clients know they are at risk of enquiry, either because there is genuine doubt over the tax treatment of an item in their return or because they have withheld information from their adviser. For most however, an enquiry is unexpected.
Where there is doubt over a tax treatment, the advisor will have fully disclosed the treatment adopted, prepared the client for the technical argument, HMRC’s likely position and the process that will be followed. Knowing what is to come helps the client to prepare for the uncertainty that may hang over them for months or even years. As time progresses, frustrations may surface but generally they can be managed.
When the enquiry is unexpected, its impact depends upon its nature and extent. A simple technical or factual query may be easily and swiftly dealt with.
A more detailed enquiry can extend over a significant time period and involve the production of specific documents or information. That information can – in a residence or domicile enquiry – extend to matters that the client regards as highly personal. Being asked to produce evidence of dates of travel, intention to settle, intention never to return and so forth can be difficult practically and intrusive personally. What may seem to the client a matter of privacy may to a tax inspector look like an attempt to conceal. That can lead to tensions between the inspector and the client which the advisor must endeavour to manage.
In my experience, much of the tension arises as the list of information required expands beyond the basics and on to more personal records or explanations. If the inspector feels that some questions have not been answered, then inevitably more will be asked. From the client’s perspective this can feel like a fishing expedition where the tool has changed from fly-rod to trawl-net. The client has, in their mind, become a victim of an unfair system. Frustration erupts into anger.
The Advisor’s Perspective
The advisor – acting for the client and in their best interests – must manage any tensions that arise. In a routine enquiry, that will normally be an easy matter, but if an enquiry drags on or the technical arguments begin to appear less strong, that can change. Persuading the client that these things take time becomes more difficult as time progresses. I can still remember enquiries from many years ago that were settled simply because the client had had enough of the stress and uncertainty, but which could have been concluded very differently if the client had been willing to continue.
Managing that kind of stress is a matter between the client and advisor. When the stress turns to anger it can involve the advisor having to keep that anger from the inspector or, if it erupts in a meeting, managing it. Professional exams do not prepare advisors for this; even decades of experience cannot always prepare you for it as every situation is different.
Being Prepared
Preparation is often the deciding factor in successfully concluding an enquiry. If a tax treatment is uncertain the position will have been thought through very carefully, discussed with the client, fully disclosed to HMRC and the questions anticipated. Any necessary documentation will be in place.
The best evidence is contemporaneous: records kept in real-time and the reasoning for decisions recorded in, for example, board minutes or exchanges of correspondence. In a case where residence or domicile is a factor, keeping careful records over a period of years can massively reduce the stress of an enquiry if and when it comes (though it is important to know what to keep and to be disciplined in keeping it). This is where regular meetings between client and advisor really pay off: delivering best advice requires an understanding of the client as a person, not just a set of facts.
The Human Factor
Over the years, numerous clients have said to me – during or at the end of enquiries – “you are always so calm”. I always tried to be, because for me that is an essential part of being a professional. Underneath the surface however, things were sometimes very different. Loss of sleep, constantly pondering potential outcomes, the feeling in the pit of the stomach when you think you have missed something fundamental (and the relief when you find that you haven’t), the strain of being the go between, worrying about the client’s wellbeing.
These stresses are not always manageable.
Balancing the technical, practical and psychological factors comes down to training, experience and judgement. It is an essential part of being a professional. But advisors and clients are human beings as well and stress can have a huge effect. I’m a firm advocate of being open with colleagues about stress levels and of advising clients to share their worries with close family. We all need someone watching over us at these times.
Safe Landing
On the enquiry itself, as with so many things in life, planning and preparation can make a huge difference in minimising the stress involved. As a former colleague once said to me “time spent on preparation is rarely wasted”. He was right.
Reducing Tax Anxiety with Daysium
At Daysium, we understand how emotionally draining it can be to face an enquiry. Our goal has always been to reduce complexity and uncertainty. Tax compliance doesn’t have to be cumbersome, and record-keeping can be straightforward with a bit of help from automation.
We also agree with Paul on the value of open communication. Our platform helps log and gather supporting records and share ideas between clients and tax advisors. The reports clients can generate and share, if they choose to, can help tax advisors notice any issues in advance. Advisors can also help ensure day counting works for the client’s unique situation.
Tax advisors should take this opportunity to join our newly opened Partner Program to enhance their clients’ record-keeping and day-counting process. You’ll be part of an innovative network of tax experts from different countries.
While joining through a partner is the quickest way to get started, you can also sign up for our waitlist. We’ll begin onboarding people from the waitlist soon.
A Very Orderly Man – A Blog by Paul Aplin OBE
A tax inquiry can drain your time and energy. You need to provide evidence to support your case, and often, the proof goes beyond your financial records. Our Senior Advisor, Paul Aplin OBE, experienced such a situation with a client.
As a renowned tax writer and commentator, Paul shares the story of an elderly client. They had to find supporting evidence for a domicile inquiry, with HMRC seeking information beyond the client’s financial footprint.
Gathering supporting evidence like this can take time. But it can also feel intrusive and cumbersome – something we here at Daysium want to prevent.
A Letter from HMRC
A few days ago, I drove past a house I haven’t seen in years. It was once owned by an elderly client, a very orderly man whose financial record keeping was immaculate. Unfortunately, some of the most important information I needed to establish his tax status related to non-financial matters – and in respect of those, his records were very different.
Ringing the bell as I arrived for our first meeting (on the stoke of 8.30 am as I had been warned he was a stickler for punctuality) I was surprised to be kept waiting for several minutes before the door was opened. Franz was wearing a dressing gown and looked at first perplexed, then mortified as he realised that had forgotten our meeting. He ushered me in and gave me the newspaper to read while he dressed, emerging a few minutes later immaculately turned out and carrying a pot of tea.
His tax affairs were, he thought, very simple and I told him that his records were the most organised I had ever seen. His concern was over a letter from HMRC asking some questions about his domicile. He could not understand why this was an issue or why some of the questions in the letter were, to his mind, both intrusive and deeply personal. He had a letter from a few years earlier conforming his non-domiciled status but had not appreciated the fact that it could – and would almost certainly – be questioned again.
Questions Beyond Finances
Some of the questions were easy to answer, simple matters of fact or points that that were well documented in his impeccable filing system.
Others were more difficult. He had for example destroyed old insurance policies and evidence of membership of social and sporting bodies.
One particular item sticks in my memory, partly because of the incredulity it prompted: “personal correspondence and photographs to help me understand your background, lifestyle and future intentions”. He was equally offended by a question regarding his religious, cultural and social connections. “How far,” he asked “can they intrude on my private life?”.
Ultimately, we did find enough information to satisfy HMRC and to close the enquiry. I warned Franz to keep all of the documents we had gathered and suggested others to keep in future, as I strongly suspected that the issue would be raised again within a short time. Neither of us wanted a repeat of the intrusive, time consuming, stressful and disruptive evidence-gathering exercise we had just been through.
That call to action proved, however, to be redundant as Franz died the following year.
A charming, fascinating and meticulous man who reinforced in my mind the importance of understanding that not all documents relevant for tax are financial – and of ensuring that they are identified and kept securely in anticipation of the day they may be needed. Knowing the client as a person makes it far easier to guide them through the tax labyrinth.
Secure and Simple Record-Keeping
Facing an enquiry can feel daunting. The process can be time-consuming and expensive. But it’s also a reality many globally mobile people must be prepared for.
Our aim is to remove uncertainty and strengthen your records in advance. As Paul wrote, “not all documents relevant for tax are financial.” With our app, you can log evidence like photos and your location data securely. These can be valuable if you’re facing an audit. With the evidence, you can prove reliably your day count is correct. Most importantly, your data is secure and you have full control over it – at all times.
Join the waitlist to be part of Daysium right now!
The Tree in the Forest – A Blog by Paul Aplin OBE
Our Senior Advisor, Paul Aplin OBE, is a renowned tax and technology writer and speaker. Today, he’s sharing his thoughts on a topic close to our hearts: the transformative power of technology.
We hope you enjoy the story of unraveling the complexities of many mundane tasks with the help of digital solutions.
Unveiling Complexity
One day a few years ago, I was handed an archiving list. It was a routine event. As I was marking files for destruction however, one set caught my eye. It was for a complex estate that had caused me considerable grief. One stroke of a pen would – and did – consign all of the paperwork to history. I remembered that pen stroke again recently when thinking about how technology constantly changes what we do and how we do it, rendering once-routine tasks (and once-prized skills) redundant and massively reducing the time some tasks take.
When I took on the case that caused me so much grief, it was described to me as “pretty straightforward”. The late Mr X had been a very wealthy but very private man, who kept the information he shared with others – even his advisers – to a minimum. We needed to prepare estate accounts, which involved identifying his assets, liabilities and business interests. The family lawyer said that he had collected the paperwork I would need from the house and would let me have it. I had not expected him to arrive with a small van, packed absolutely full with boxes of files and loose papers. My heart sank. Where to even start?
Navigating Complexity
One of the best pieces of advice I was ever given was that almost no-one sets out to make a mess of their filing. They might not use the method that you would choose, but if you can ascertain their system, you have a framework to navigate by. Having looked in the boxes, I couldn’t find any system at all and even if there had been one, it would have been lost when the papers were boxed and put into the van. So, I set myself a method: first, go through each box in turn and extract anything that was irrelevant or out of date to reduce the volume; second, try to organise what was left into entities (properties, businesses, bank and investment accounts etc). That exercise took me many days, but gradually the random jigsaw came together, revealing individual elements as well as interconnections.
One letter I found early on intrigued me. There was a reference to some properties and to a trust about which the family lawyer, to my surprise, knew nothing. The properties were clearly substantial and I guessed that Mr X may have had an interest in them via the trust. But how to prove that? Nothing in any of the papers I had seen by the end of the first week gave me a firm link to follow up. At the beginning of the second week, I found a short note that reinforced my suspicion, but again it gave no clue about where to go next. I needed more. And as is so often the way, I found it in the very last file, in the very last box that I opened. And because I was by then pretty fed up with the task, I nearly missed its significance. I couldn’t see the tree in the forest.
You might be wondering why on earth I didn’t delegate some of this. That’s easy to answer: I didn’t know exactly what I was looking for (and as I have said, when I found it, I nearly missed it). It would have been virtually impossible to delegate the task without running the risk of missing that vital piece of information.
Unravelling Complexity
So why did the case come to mind when I was thinking about tax technology? Because it made me realise how different the exercise could be now: I could delegate the time-consuming task of going through the boxes and get someone to carefully capture every document using an OCR enabled scanner. With the information contained in the physical documents digitised, I would then be able to search on key words. And having found my tree in the forest I could cut and categorise information in different ways: chronologically to see the timeline, by tax year for the outstanding tax returns or by entity for valuation and other purposes for example. I would also have a structured set of digital files, enabling me to share relevant documents securely with other professionals involved in the case. My time would be dramatically reduced leaving me free to do other high-value work and – equally importantly – ensuring that when I did turn my attention to the task that my skill-set was really needed for, I would be firing on all cylinders.
Such technology did not exist when I trawled those dusty files, but it does now, bringing with it the potential to transform mundane tasks and allocate valuable time and resource far more effectively, increasing both efficiency and profitability.
The critical professional skill was then (and remains now) knowing what to look for – and that still needs a human being. Far from making that skill redundant, the right technology can make it even more valuable.
The Transformative Power of Technology
We wholeheartedly agree with Paul’s conclusion. Technology like Daysium enhances the relationship between clients and tax advisors. Our platform lets you log your data, simplify day counting, and automate reports. You’re also connecting better with your team.
We’re currently looking for new Founding Partners. To see if we’re a perfect match, take our Scorecard Assessment. You can also contact us directly with enquiries. Let’s transform tax compliance together.
