HMRC is investing heavily in data, digital services, AI and compliance capability. Tax and finance leaders should consider whether their own functions can see, reconcile and explain the information HMRC may increasingly use to assess their organisation. If not, they risk being on the back foot before an enquiry even begins.
HMRC’s direction of travel is clear. The organisation is becoming more digital, more automated and better equipped to use data to support compliance activity.
Its transformation programme update, alongside major investment in customer relationship management and data analytics platforms, points towards a more connected view of taxpayers built from filings, interactions and third-party data sources.
What does this mean?
HMRC is becoming increasingly capable of connecting information from multiple sources, identifying inconsistencies and targeting its enquiries more effectively.
We’re already seeing examples of this through pre-submission prompts and ‘nudge’ activity designed to encourage businesses to review potential anomalies before filing.
Automated enquiries and pre-filled tax returns sound futuristic but are something that already exists in other countries and have been discussed by HMRC recently.
For heads of tax and finance directors, the key question is not simply whether each return has been submitted correctly and on time, but whether the organisation can explain the wider picture created by its tax data, the processes behind it and any differences between returns before HMRC identifies them.
Compliance by obligation can conceal risk
Many organisations continue to manage tax obligations in separate functional silos. VAT may sit within finance, employment taxes within payroll or HR, corporation tax within a year-end process and CIS within procurement or accounts payable. Each area may have its own controls, reviews and sign-off procedures.
The challenge is that these processes are often assessed independently. Individual returns may be accurate, yet no one may routinely check whether the data underpinning them is consistent across the wider tax landscape. Defects that are currently corrected during tax return preparation may be due to operational issues earlier in the process, requiring investigation which takes time and money.
This creates a potential risk. A business may meet every filing deadline while still lacking a coherent view of its overall tax position. In that situation, inconsistencies are often identified only when HMRC raises them.
HMRC’s Business Risk Review process already considers governance, systems, controls and the organisation’s approach to compliance. It also requires supporting evidence and audit trails. Other initiatives continue to place greater emphasis on how organisations manage and evidence their tax affairs. Accurate returns remain essential, but increasingly they are only part of the picture.
From controlled compliance to data-led assurance
A useful way to assess readiness for a more digital HMRC is to consider the maturity of tax and finance processes.
The most mature businesses embed automation, monitoring and preventative controls into day-to-day processes, helping identify issues before they affect filings while retaining human oversight for complex decisions.
Developments such as e-invoicing reinforce the same theme: tax compliance is increasingly dependent on high-quality data and robust processes.
Practical actions for tax and finance leaders
The most important step for many organisations is moving from controlled compliance to greater visibility and assurance through data.
A controlled function can usually reproduce a filing due to well-defined processes and a skilled workforce. A data-led function can explain how that filing was produced back to source transactions, as well as in relation to other returns, master data, previous periods and the decisions made during preparation.
HMRC scrutiny extends beyond individual calculations to the systems, governance, controls and evidence that support them.
A practical objective is to establish a governed cross-tax view of the organisational data. This should bring together key reconciliations, exceptions, decisions and supporting evidence needed to explain the tax position.
For some organisations, this may begin with a small number of targeted reconciliations across material taxes. For others, it may involve a governed tax data layer that supports analytics, risk reporting and audit-ready evidence.
Organisations don’t need a major transformation programme. The priority is clear visibility of tax data, processes and risks, supported by consistent monitoring, ownership proportionate controls. This helps identify risks earlier, strengthen assurance and better evidence tax positions.
Robert John leads the tax technology and transformation team at Saffery.
This article first appeared on FT Adviser.
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