Here’s how businesses can take advantage of artificial intelligence to shortcut taxation audits.

In Autumn 2015, the UK Government announced its HMRC third party tax software and Application Programming Interface (API) strategy. This initiative allows companies to access tax rules through software. According to HMRC, “Through better APIs, third party software will be able to use the same rules and logic that HMRC services use and can be pre-populated with data.

This will make tax easier for customers and help more of them get it right first time.” This is a momentous development for the Government and the tax industry, with major consequences for both in terms of speed, quality and efficiency for the taxpayer and revenues for HMRC.

At the same time, artificial intelligence (AI) technologies that can automate tasks that historically required the knowledge and judgment of human experts continue to emerge fast. Just recently a computer algorithm called AlphaGo, developed by Google’s AI venture DeepMind beat the leading human player over a five match series of “Go”, a game notorious for huge complexity and the requirement for applied rules, experience and judgment.

Such technologies are now being applied to tax and accounting, which combined with HMRC’s new open strategy for its tax rules, will lead to a revolution in the way in which tax calculations and reporting are carried out.

Historical challenges with tax reporting

Growth businesses face a number of challenges around tax auditing and reporting. The traditional audit and reporting cycle often does not align well with the operations of fast developing businesses, which can be anything but linear. The process of employing experts to prepare filings, ensure compliance with reporting rules and optimise a business’ tax position is complex, resource intensive and costly. And tax rules are subject to frequent change – the standard rate of corporation tax has changed every year for the past five years.

A new era of reporting

The announcement by HMRC and the arrival of AI technologies in tax to create a new world of online reporting will bring many benefits, enabling businesses to move from manual, event-driven, complex reporting processes to an automated, real-time view of a business’ tax position. Integrated with accounting systems at one end and HMRC at the other, these systems will be capable of doing all the collection, analysis and reporting that the government requires in real time and without human intervention.

Critically also, these AI technologies will include many of the tax judgments that historically have required an expert’s ability to interpret the rules. Businesses will benefit as it becomes significantly cheaper to provide real-time, accurate filings and in the process reduce the risk of non-compliance.

Where to start

Here are some starting points to explore how intelligent systems might help:

1. Do your research. Ask your tax adviser and/or accountant how they plan to respond to the Government’s opening up of tax software rules. If they are not doing anything you may wish to consider partnering with a more forward thinking organisation as maximising tax and accounting practices is key to competitiveness. The Big Four accounting firms regularly publish insight on AI, sometimes called cognitive computing2. Recently Deloitte3 revealed that 28% of professionals expect cognitive computing to boost innovation.

2. Don’t reinvent the wheel. Tap into what other business are doing with AI, even those in other sectors, as that will provide a good steer on what AI can do for you. AI is well established in the law sector4, for example, in case prediction, compliance, contract analysis and document automation.

3. Consider how AI could free up your internal experts so that you can make better use of your people. Audit your audit process. Who is involved and could their tasks be automated?

AI allows growth businesses to benefit from the knowledge of top experts in the field baked into software rules, putting small businesses on a level playing field with larger competitors. There will always be a place for human expertise and creativity – used effectively AI automates rules-based tasks, both routine and complex, freeing up experts and business leaders to innovate.

Richard Seabrook is managing director Europe at Neota Logic.

Related: What is the role of an internal auditor in growing your business?