RUSSELL GAMMON

Chief Innovation Officer

Alphatax

As professionals across the industry will be all too aware, the tax function is experiencing one of the most significant periods of change seen for many years. Whether the priority is to address broader reporting and compliance obligations or respond to more demanding business expectations, teams are under significant pressure. 

To deal with these challenges, many organisations have turned to digital transformation, with an increasing number accelerating their move to cloud-based technology to modernise legacy systems and automate manual processes. Progress, however, is far from consistent, with some tax teams moving extremely quickly while others continue to rely on desktop software, manual methods and spreadsheet-based workflows. Indeed, organisations operating in similar markets often achieve very different outcomes. 

So what’s happening, and why are some making rapid progress while others continue to struggle? At the heart of the matter is digital maturity, or in other words, how well an organisation uses digital capabilities to achieve its strategic goals.  

Organisations that can be categorised as having higher digital maturity already have the foundations needed to modernise successfully. They typically have connected systems, robust data governance, standardised processes and infrastructure that can support modern applications, whether deployed in the cloud or on-premise. In these environments, introducing new tax technology becomes an extension of existing capabilities rather than a wholesale overhaul. By contrast, organisations with lower digital maturity often find that new platforms expose existing weaknesses rather than resolving them, limiting the value they ultimately deliver.  

This explains why organisations investing in similar technologies can experience very different outcomes. One may accelerate transformation, while another struggles to realise the benefits it is hoping for. 

Getting the foundations right   

The challenge rarely lies just with the software itself. The bigger obstacle is the environment in which it has to operate. For example, moving tax applications into the cloud does not automatically solve fragmented data. If tax information originates from multiple business systems and is inconsistent or difficult to access, cloud implementations simply expose those issues more quickly. 

Then there are the challenges associated with data quality, which should be addressed before implementation begins rather than treated as something that can be corrected after the fact. The objective should be that changes made in one area flow consistently across the overall tax function, minimising the need for manual intervention and improving confidence in the information used. This also means that tax teams spend less time resolving data issues and more time focusing on higher-value activities.   

Many transformation projects fail because organisations concentrate on selecting technology before understanding the processes it needs to support. The approach taken to data, for example, is key and strongly indicative of whether a transformation strategy is set up to succeed. In practical terms, organisations with higher digital maturity can work from a shared data foundation rather than maintaining multiple versions of the same information across different processes.  

Existing processes also play a major role. If workflows are inefficient or poorly defined (even if they have been considered fit for purpose for many years), digital transformation rarely produces the desired improvements. Success also depends on the wider organisation being ready to support new ways of working, rather than viewing implementation as simply replacing one software platform or legacy process with something new. 

Reaping the benefits 

Building digital maturity allows organisations to move away from the tendency many have to adopt disconnected point solutions towards a more integrated tax operating model.   

Consistency also makes it easier to identify issues or errors earlier in the process, when they are generally quicker and less costly to resolve. The cumulative effect is greater control, rather than simply a faster way of completing existing tasks. 

The underlying point is that digital maturity should not be viewed as a destination that organisations eventually reach. It is an ongoing capability that becomes increasingly valuable as processes need to change or there are new opportunities for improvement. 

This is crucial because future tax obligations, from reporting to compliance and everything in between, are becoming even more demanding, making it more important than ever to build an operating model that can adapt without requiring fundamental redesign every time priorities change. Organisations that continue investing in those underlying capabilities will be better placed to take advantage of future technologies because the conditions needed to support them already exist.   

Ultimately, successful modernisation is about more than adopting cloud technology. Organisations that invest in the right digital foundations will be far better positioned to realise the full value of cloud and take advantage of future innovations, including AI, as the demands on the tax function continue to evolve. 

KAREN JOY BACUDO

Finance Editor

Xero has published UK research linking higher profitability at accounting and bookkeeping firms to embedded use of artificial intelligence. The study found that the most profitable firms recorded net profit margins more than twice those of lower-margin peers.

The findings are based on a survey of 520 independent senior accountants and bookkeepers across the UK. It defines top performers as firms with net profit margins of 41% or above.

The report suggests AI is generating measurable time savings across the profession, with the biggest gains concentrated among firms that have moved from trial use to routine adoption in daily workflows. Across all surveyed practices, AI saved an average of 7.1 hours a week, which respondents estimated was worth about GBP £108,000 a year in staff time.

Among top-performing firms, the gains were significantly higher. Practises that had embedded AI into day-to-day work reported average savings of 10.6 hours a week and an estimated GBP £202,000 a year.

A clear divide also emerged in process discipline. Among practices actively using AI in daily workflows, 87% said their core business processes were well documented and regularly updated. That compares with 18% of practices not planning to use AI.

Advisory focus

The research points to advisory work as one of the main uses for time freed up by automation. Advisory had the highest reported profit margin of any service offered by UK firms, at 51%, yet only just over half of practices currently provide it.

Capacity remains a constraint for many. Nineteen per cent of firms said limited capacity was a barrier to offering advisory services, while three in five practices said they were directing AI-related time savings towards that work.

The data also suggests firms do not broadly expect AI to trigger staff cuts. Only 5% of UK practices said they expected AI to reduce headcount within the next year, indicating that most see the technology as a way to reallocate staff time rather than replace roles.

Kate Hayward outlined the broader patterns identified in the research.

“The qualities that define the successful modern practice are clear. We’re seeing firms make more deliberate decisions over which clients to serve, how to build teams around them, which tools to use, and never letting billable work go untracked – all contributing to major gains across the industry. The data speaks for itself when it comes to AI. It’s about freeing up time to bring this industry’s most valuable skills to the surface, it’s not about replacing people. The story here is what it allows firms to do next, whether that’s advisory, deeper client relationships or growth. Our data shows that while AI accelerates the positive changes already underway, getting the essentials right has never been more important,” said Kate Hayward, UK Managing Director, Xero.

Hiring shift

Beyond AI, the report argues that more profitable firms are reshaping hiring, team structures and pricing. Nearly two-thirds of firms, or 63%, said they are changing what they look for when recruiting.

Soft skills and relationship management were cited by 28% of respondents, while 27% pointed to technology fluency. Both ranked ahead of traditional accounting skills as firms reassess the mix of expertise needed within practices.

Top-performing firms were also more likely to recruit specialists not historically associated with accountancy practices. The survey found that 34% were hiring non-traditional roles such as data analysts and tax technologists, compared with 18% across the wider market.

That suggests a growing willingness among better-performing firms to widen the mix of expertise they bring into the business. The shift mirrors a broader change in professional services, where firms are looking beyond technical compliance work towards services that rely on analysis, communication and client management.

Pricing model

The research also highlights differences in how firms charge for work. Top performers charge more than a third extra for payroll alone, pointing to stronger use of retainer and value-based pricing rather than billing only for time spent.

Price rises are also more common among stronger performers. According to the findings, those firms were more than twice as likely to be planning an increase of more than 20%.

Among practices already using value-based pricing, two in five said it had made their firm more profitable. That adds to the report’s broader argument that margins are shaped not only by software adoption but also by choices around service mix and commercial model.

Rachel Harris, Director of UK-based accountancy practice striveX, described how those operational changes have played out in her own business.

“Over the last five years, technology has powered my firm’s growth engine and been a huge contributor to why we’re now a multi-million pound business. Gaining access to AI is freeing my team up for higher-value work, now spending more time interpreting it for our clients. But it’s mapping client journeys, each piece of software and every process my team touches along the way which has proven to be our best diagnostic tool. Any margin gained from having our team well set up to know when and how to reach for different tools is reinvested in our client relationships,” said Harris.

Gas network company SGN confirmed it had repaired three minor gas leaks and left the site on Monday, August 3, six days earlier than expected.

The leaks were discovered during excavation works last month and contributed to the pushing back of the road’s reopening date, yet again, to September 20.

The completion of the gas mains replacement marked a significant step forward in the wider Oxford Station improvement project, which was originally budgeted at £161 million but is now expected to cost at least £237 million.

The development prompted hopes that Botley Road, closed beneath the rail bridge since April 2023, could reopen earlier than planned.

However, Network Rail has moved to manage expectations, saying the project remains on course to meet its existing target date rather than finish ahead of schedule.

A Network Rail spokesperson said: “We’re pleased that SGN has completed its gas mains replacement work.

“While this is an important milestone, it doesn’t necessarily mean the overall project will finish early as some remaining work is dependent on access to the railway, which we have had to rearrange to enable the replacement of the gas main.

“Our focus remains on meeting our planned deadline of 20 September for reopening Botley Road to traffic.”

While the completion of the gas works removes one of the most recent obstacles facing the scheme, Network Rail says further work under the bridge and around the station is still needed before the route can reopen to traffic.