MTD Series: Making Tax Accessible

In the run-up to the first MTD deadline, we’re launching our Making Tax Beautiful series – a fortnightly look into the changing world of VAT from our Director of Product Strategy, Russell Gammon. This week, Russell takes a look at Excel in the tax and finance function, and why Making Tax Digital doesn’t (and indeed shouldn’t) mean the end of using everyone’s favourite spreadsheet software.

A couple of months ago when I joined Arkk, I moved from desktop Office to Office 365. What followed closely mirrored the 5 stages of grief model quite well. Denial (I’m sure I can find a way around this…), anger, bargaining and depression followed swiftly, and sure enough, I’ve now reached acceptance.

Turns out that O365 is really good and a marked step forward, getting around some of the real issues with Excel such as version control and multi-user editing. Many firms have already moved over and I’ve no doubt over the next few years that trend will continue. By 2030, we’ll all be reminiscing about desktop software in the same way we currently fondly remember Fax machines.

Excel is everywhere

It’s also reckoned over a billion people worldwide use Excel. Moreover, some studies suggest that finance professionals spend an average of 2.5 hours every working day using Excel. That’s a fair amount of time.

But, why? Well for one, it’s flexible. If you need to work out certain things in half an hour, it really is the only way for most businesses. Also, I think there’s a cultural aspect as much as anything. Everyone learns Excel at school, so it really is a grass-roots program that people are familiar with. Yes, others like Google Sheets are available, but really Excel is “the norm”. I mean other search engines exist besides Google (Bing, anyone?), but really, what’s the point?…

Kill the spreadsheet?

I’m always partial to a good sensationalist headline such as “Spreadsheets have no place in modern Banking” (this is a real example, I’ll save the firm the embarrassment). Of course they do. The point that’s being driven is that critical business functions shouldn’t run on Excel, which is fair enough. At the same time, I’m not sure that any Bank uses Excel as their core Banking platform, nor is anybody suggesting that they should be.

However, for a number of lower value tasks, Excel is entirely fine as the tool of choice. When it comes to the EBA regulatory returns for example, over 65% of the UK market is catered for by two vendors (I’ve been employed by both…), who both use Excel as core components. On MTD, one of the Big 4 estimates that 70% of VAT processes use Excel at some point. Whilst the tide might turn (slowly) towards other solutions, it”s certainly here to stay as a fundamental business tool.

Why does this matter?

So, why all of this preamble? Well, how about a middle-ground? I would argue that rather than replacing Excel, how about we augment it instead, and use it for the types of tasks it should be used for. This takes into consideration that Excel isn’t a great tool for some tasks, but really is for other tasks. Seems reasonable to me. Let’s take an example…

Partial Exemption 

I don’t pretend to understand all the nuances of Partial Exemption, but what I do know is that it can get pretty darn complicated pretty darn quickly. I also know from a technology side that it could therefore take months to fully “productionise” this into a full-blown software solution, away from Excel.

For some firms, that’s the right answer. There are tools on the market that can cater for that, but none of those has become real markets leaders. The real issue is that everyone’s methods are different and therefore whilst you can “techify” certain parts of the process, each client will have a relatively bespoke answer to how they deal with it. That lends itself to custom one-off builds from a software perspective. Again, these are fine, but are projects that take months and therefore aren’t cheap, so only make sense for the larger firms (Banks…) in the market.

Ultimately, for the majority of firms with Partial Exemption, a spreadsheet model is entirely fine. So, let’s augment Excel rather than replace it!

Making Tax Accessible with LinkedIn

What does that mean for our clients? 

When it comes to our new platform, we take this view to heart. When it comes to Partial Exemption, we allow users to link their results into the VAT calculation. We don’t, however, remove Excel from the process. This means clients don’t need to totally overhaul their process (taking months…) but can continue to use their Excel model.

However, because we bring the files into a single system, it acts as a data repository for VAT. We also allow users to make comments throughout the process within the system. So, a year later when the auditors are in, you can see why an adjustment (in Excel), from v4 of the file, was indeed (say) £100k. Everything in one place.

To summarise 

Excel is awesome. We shouldn’t kid ourselves that MTD is going to drive it out of the VAT return process. Nor will it be driven from many other businesses processes either. In many instances, Excel is the right tool for the job. However, we do feel that where Excel is being used, it can be enhanced to form a more robust process.

Some clients will, of course, move from the staple Excel to full-blown systems (hooray for the Consultants!). For some firms who have the budgets, this is the right way to go. However, for the majority of the market, good ol’ reliable Excel will remain the tool of choice. That’s not a bad thing; let’s just improve on it without being the “sledgehammer to crack the proverbial nut”.

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