Daysium’s Senior Advisor, Paul Aplin OBE, has written a follow-up to his post on today’s data-rich world. Today’s post, “Beneath the Surface,” offers a deep dive into the complexities of tax information exchange. As governments worldwide enhance their data collection and analysis capabilities through agreements like Automatic Exchange of Information Agreements (AEOIs), understanding these changes is crucial, especially for globally mobile HNWIs. Keep reading for Paul’s insights.
Beneath the Surface
In my last blog for Daysium I looked at the data-wake most of us leave behind in this data-rich world we inhabit and at how we can intentionally or unintentionally reveal things of great interest to tax authorities.
Sometimes, for example if you need to prove where you were, what you did or perhaps even why, that data trail can be invaluable. At other times it can provide tax authorities with evidence of undisclosed tax liabilities.
In addition to the data that we make publicly available through social media and the data we record consciously, tax authorities have progressively gained access to vast quantities of data through Automatic Exchange of Information Agreements (AEOIs). They have also become extremely adept at using data analytics techniques and Artificial Intelligence (AI) to match data with the information that individual taxpayers have declared and to spot omissions and suspicious patterns.
The OECD Common Reporting Standard (CRS) has been implemented by over 100 tax authorities around the world and many have been exchanging information under it for 6 or 7 years now. The CRS requires participating tax authorities to gather information from financial institutions in their jurisdiction about non-resident account holders and to share that information with the jurisdiction where the account holder is resident. The required information is extensive, including sufficient details to reliably identify the taxpayer (name, address, date and place of birth, tax identification number) as well as the balance at 31 December of the relevant year together with the amount of any interest, dividends, distributions and gross proceeds from the sale or redemption of any financial assets.
The scope of the CRS has been extended to include Specified Electronic Money Products (for example, prepaid online accounts or physical cards that can be used to store money to pay for goods and services) and Central Bank Digital Currencies. In addition to this a new Crypto Asset Reporting Framework (CARF) is being added, recognising the fact that cryptoassets can be transferred and held without interacting with traditional financial institutions – and of course that this represents a significant risk of non-compliance. CARF will take effect in 2026 for HMRC.
Online platforms (for sales of goods, services and for property rental) are also now subject to cross-border reporting requirements. While HMRC already had the power to obtain information from UK based platforms, many overseas platforms will also have to provide details of transactions from 1 January 2024 (with HMRC expected to receive that information in early 2025).
Since 2016, HMRC has secured over £586 million of additional taxes through AEOI agreements.
A few years ago, exchanges of information internationally were specific to particular taxpayers and subject to a great deal of process; The CRS and FATCA (the US Foreign Account Tax Compliance Act) have changed things fundamentally; CARF will take that a stage further. Add in the processing power of modern computers, a deep knowledge of data analytics and AI and you have a radically different picture.
What was once occasional is now routine and what once took years can now be achieved in minutes.
It’s a very different world.
Today’s comprehensive tax information exchange between tax authorities requires robust record-keeping from individuals and businesses alike. If you’re looking to streamline and secure your tax residency data, consider Daysium. Our platform ensures accurate day counting and robust corroborate records, which are essential for maintaining compliance in today’s tax environment. Join the Daysium waitlist now to gain access to our innovative compliance tool.
Revolutionising Record-Keeping: How Technology is Transforming Tax Compliance for Individuals
Picture the scene: your tax advisor calls and informs you of a coming tax inquiry. You’re required to gather your records – flight itinerary, hotel receipts, photos. Documents showing your residency days at a given jurisdiction.
The scenario is not uncommon. An HMRC spokesperson said their investigative team secured £4bn from the wealthy, an increase of 60% from the previous year. You’ll need accurate records to prepare yourself for the investigation.
The good news is that technology is revolutionising record-keeping. Let’s take a look at how by discussing the following topics:
Three Reasons for Accurate Record-Keeping for Tax Purposes
Let’s start by considering why you should have record-keeping on your radar for tax compliance purposes.
Accurate record-keeping is more than about saving time. It can be vital for financial planning and keeping the taxman happy.
A pristine set of records will help you with:
1. Compliance with Tax Laws
The dynamic nature of global residency calls for discerning your movements across jurisdictions. Consider the complexities: the definition of tax residency varies from country to country. For example, counting residency days in Ireland differs from that in the UK. Knowing one jurisdiction inside out can lead to misinterpretation in another.
For example, the UK and Ireland count a residency day slightly differently. In Ireland, you are considered ‘present’ if you’re in the county at any time during the day. However, in the UK, you’re considered ‘present’ if you were in the UK at midnight at the end of the day.
Depending on what jurisdictions matter to you, the intricacies of understanding the rules are vital for compliance.
Documenting your days in different jurisdictions is one thing. But as local governments are increasingly interested in the tax affairs of the wealthy, you often need to go further. Tax compliance requires documenting your travel itineraries, including precise arrival and departure times. The proof can safeguard you against inadvertent errors that could lead to legal complications.
2. Tax Inquiry Preparedness
The scrutiny and regulatory oversight are increasingly focused on high net worth individuals ( HNWIs). The UK even has a Wealthy Team examining the country’s wealthiest taxpayers. In 2022, they opened 25 criminal investigations.
Meticulous records prepare you for an inquiry that could happen. Suppose you have corroborating evidence to show things like your location data. In that case, you have irrefutable proof of adhering to tax laws. Access to the information can give you peace of mind before and during an inquiry, moving things along swiftly.
3. Freedom to Choose
Accurate data enhances your freedom, whether you travel to another business meeting or spend time with family abroad.
Imagine a scenario where you receive an invitation to an exciting new business opportunity. But you’ve already spent time in the UK and you’re worried you might overstay. If you’re guessing your current day count, you may end up with one of two bad scenarios. You might travel to the meeting, overstay and pay more tax. Alternatively, you don’t risk it; stay home and miss out on the opportunity.
Meticulous records give you more freedom to make informed decisions and spend time how you want.
The Problem with Traditional Record-Keeping
Record-keeping makes sense, but not all methods are the same. We’re talking about traditional record-keeping – your Excel spreadsheets and cabinet full of binders, if you will.
The core problems for traditional, manual methods are:
Human error – To err is to be human, but unfortunately, sometimes these errors cost. The risks increase the more delegation record-keeping involves. When you have tax advisors dealing with PAs, communication errors could occur.
Access – Manual folders don’t travel with you, no matter how well you organise them. You also need to consider who can have access to these files. Physical access has many hurdles to overcome. The cost of keeping your files safe is often at the top.
Data loss – Physical copies can and will get lost. This could be due to accidents or even nefarious acts. The fact you can’t immediately have all records centralised is a risk.
Compliance risks – Tax laws and regulations change constantly. Monitoring compliance becomes difficult when records are manually kept.
Your reliance on traditional record-keeping doesn’t cut it for one more reason: the authorities aren’t relying on it. Jurisdictions worldwide are using digital tools to combat things like tax evasion. Different agencies are communicating with each other, making it vital to have good evidence on your part.
For example, the tax authority might look into your residency records. They’ll communicate with other local authorities and notice there’s a parking ticket to a vehicle registered to your name on a day you weren’t supposed to be in the country. You need to prove you weren’t there; for this, you require solid evidence.
The good news is that technology can help you with the conundrum.
Three Technologies to Improve Record-Keeping for Tax Compliance
As tax jurisdictions are improving their use of technology to investigate and close loopholes, you should also add the right technology to your toolkit. These innovations can make controlling your time and data easier, leading to more peace of mind.
1. Mobile Apps
A wealth of mobile apps is on the market to help gather and log data. In general, many platforms can connect different accounts under one central view. These traditional finance apps can make monitoring your accounts easier. Tax jurisdictions, like HMRC, also have apps to let you study your tax data.
The market also has a few record-keeping apps for counting your days in different tax jurisdictions. While these can help you get an overview of days spent abroad, they don’t go far enough. Our app facilitates logging your residency days, creating a trail of records to help in the case of an audit.
You can log in any data that you find valuable to show and prove your location. You’ll not only get a record of your days in a specific country and jurisdiction, but also evidence to support the claim.
2. Cloud-Based Platforms
Cloud solutions are another big technology revolutionising tax compliance and record-keeping. The cloud enables you to:
Centralise your tax data.
Access your records no matter your location.
Collaborate faster with your tax advisor.
Choose who can access the data and what data they can see.
Improve data security, with information stored in secure servers.
Take our Daysium app as an example. The app travels with you wherever you go. You can also share reports with your accountant, whether in the same country or not. But these reports are never automated. We believe you should be in charge of what and when you share.
3. Automated Record-Keeping
When your tax advisor asks for specific records, knowing where to start can seem daunting. Finding corroborating evidence after an event took place months ago is time away from family or work.
Combining the cloud with artificial intelligence and machine learning transforms the process. You can automate many record-keeping processes for tax purposes. When you add AI to the mix, you can also process vast amounts of data, receiving in-depth analysis of what’s happening.
We have our AI assistant, Daysi, who we describe as an extension of your tax advisor. The always-present assistant you can turn to if your tax advisor isn’t available. Daysi can answer your questions and help give you an idea how to solve a problem – and tell you to reach out for your advisor when needed. You’ll get extra support to navigate your record-keeping issues.
The Benefits of Using Technology for Tax Compliance
All of the above three technological solutions come with benefits. Adopting them to your tax record-keeping can help you:
Save time – AI can help automate many processes you previously had to do manually. You don’t have to browse through filing cabinets to find a slip; you can simply search your digital records in minutes.
Reduce errors – Humans make mistakes. While you could write down the wrong date from your booking reference, an app would scan it accurately.
Improve access – The increased access to the cloud means you can take care of tax matters anywhere in the world. Your tax advisors can also access your information without compromising the security of the files.
The above technologies and their benefits ultimately lead to cost savings. You empower yourself to make the most of your tax code and leave room for other things in life – business or family.
Best Practices to Overcome the Risks of Digitalising Your Record-Keeping
In a UK Government survey, 45% of UK adults disagreed with the statement that they feel safe and secure online. Cyber-attacks and scams are still a big issue when using technology and digital platforms.
Dread of digital safety isn’t unreasonable. AON’s survey from 2023 shows one in five businesses in Ireland experienced a cyber attack in 2022.
However, awareness of the possible risks shouldn’t be a reason to stop using technology. The perception can aid you in being smarter with your digital choices.
HOW CAN YOU GUARANTEE YOU’RE SAFE?
The three best practices to digitise record-keeping the right way are:
Choose the right products and platforms. When looking for a product or app, pay attention to security issues. Check what the company says about the security features and ask questions if you can’t find the answers upfront.
Manage access. Use the option to manage and control access to your data. Ensure you understand who can access your data and how the platform stores it. The more control you have over who has access, the better.
Understand relevant regulations. Local authorities set clear rules on how to keep records. Be aware of these rules and ensure all your technologies comply. Again, talking to the service provider is essential to know whether it complies with the regulations.
If you’d like to understand your current risk level better and get actionable steps to improve, take our Risk Score Assessment here. The quick assessment will reveal any problem areas in your current record-keeping and suggest ways to strengthen those areas.
A Case Study: Using Daysium to Revolutionise Your Tax Record-Keeping
We at Daysium are confident technology can revolutionise tax compliance. Our platform offers HNWIs a way to monitor how many days they spend in or out of jurisdictions relevant to their tax residency. With our app, you can:
Establish rules to follow regulations relevant to you and you only.
Plan your future travel to ensure you don’t break the rules.
Log travel in a timeline to avoid data gaps in your tax records.
Provide evidence to support your tax residence claim, making audits faster and smoother for all involved.
Generate reports that can be securely shared with your advisors.
We use automation and cloud solutions to smoothen the above steps for you. You don’t need to spend hours adding information to our app. The automated process enables you to view your day count accurately and in the palm of your hand.
Did you get a call to attend a meeting on the other side of the world? With Daysium, you don’t have to fear missing out on this opportunity. You can look at your profile and see if you can accept it or schedule it for another time.
And you don’t need to worry about security. Daysium doesn’t sell your data or share it with anyone. You can control who gets access to the reports you generate. You are at the helm of this technological revolution, not a bystander. We like to think we are the guardians of your data.
Conclusion
Meticulous record-keeping for tax purposes ensures compliance with increasingly complex tax laws across jurisdictions. Technology can help you prepare for tax inquiries, providing irrefutable evidence to support your adherence to tax laws. The process will be smoother, and your mind will be at ease.
As authorities rely more on digital toolkits, adopting technology also becomes vital for you. Knowing things like your location data optimises your time.
At Daysium, we aim to empower you to control your data better and help you navigate record-keeping efficiently. If you want to know more about our platform, contact us and join our waiting list today.
