In 2006, Lord Carter of Coles concluded his review of HM Revenue & Customs’ Online Services with the recommendation that all statutory business tax returns should be filed electronically by 2012.
Consequently, legislation is now in place* which requires all corporation tax returns for accounting periods ending after 31st March 2010, and submitted after 31st March 2011, to be filed online. This will be done through the Government Gateway in a special format using eXtensible Business Reporting Language – XBRL. This includes the electronic filing of the forms CT600, the related computations and the accompanying entity accounts.
The benefits of XBRL reporting are considered to be mostly relevant in the longer term. Ultimately it is considered that producing financial information in this format will lead to the analysis, use, re-use and exchange of financial information to be more efficient and will improve usability and transparency of annual reports and financial information.
The filing of the corporation tax returns is unlikely to pose any real problems, as most tax software providers are already making necessary provisions. However, if you currently produce your company accounts in-house using Word, Excel or a similar package, you will need to adjust your internal systems and processes accordingly. At the time of going to print, there were very few software systems available in the UK for producing company accounts in XBRL, and even fewer for large companies.
XBRL – what is it?
eXtensible Business Reporting Language is a system of tagging to define the structure and content of electronic data, allowing different financial information to be identified and categorised.
The system enables users to create unique identifying tags such as ‘Profit before tax’, ‘Turnover’, ‘Gross Profit’, etc. The identifying tags can also provide a range of information relating to items such as its currency, related period, or whether it is an asset or liability in nature.
As there are considerable variations in the use of XBRL tags, a range of pre-defined tags has been developed in the form of taxonomies, essentially a tagging dictionary. Taxonomies are being developed at a global level as many countries around the world adopt the process of e-filing for statutory reporting purposes.
XBRL was designed to make it easier for computer software to automatically communicate, exchange, read, process and analyse financial information. However, this format cannot be read by people and therefore the formats required by HMRC need to be in iXBRL (Inline eXtensible Business Reporting Language) allowing users to see the original content and format of documents.
Where are we now? What impact is iXBRL likely to have?
The main impact is likely to occur in the conversion process required and the preparation of entity level accounts in iXBRL format and assigning the relevant tags from the appropriate taxonomy so that the accounts included with the return complete the filing requirements.
The online Corporate Tax submission pack filed through the Government Gateway will consist of the following attachments:
- Corporate Tax Return Form (CT600) – in XML (eXtensive Markup Language);
- Corporation Tax Computation – in XBRL;
- Legal entity accounts (UK GAAP or IFRS) – in iXBRL; and,
- Other supporting schedules – in PDF.
The most significant impact is likely to be in the first year as significant resources will be required to adapt to the new process and to assign the relevant tags and test the output of information prepared. The majority of software solutions available require each report to be tagged individually, even though this information will be available for future years, and each report will need to be maintained seperately going forward.
Whilst the CT600s and Computations are likely to be dealt with by way of updating existing software solutions that are available, the entity level accounts provide for greater variability as there are a number of different methods currently used to generate these documents.
The practical implications
As a taxpayer you are required to register with HMRC Online Services for Corporation Tax if you are not already registered. You should also ensure that you have provided HMRC with details of any appointed agents who are authorised to act on your behalf.
UHY are already set up as agents for our clients to complete the online filing.
For an interim period only, HMRC are accepting a minimum tagging list of financial data, both for UK GAAP accounts and IFRS accounts. By 2013, there will be a requirement for all items in the accounts to be tagged. All taxonomies are updated periodically, typically annually, to reflect changes in legislation and in accounting standards.
The number of items that require tagging vary according to the taxonomy being used. The table below illustrates the volume of tags involved in the main taxonomies UK companies are likely to encounter:
|Taxonomy||Full tagging list||Minimum tagging list|
(for Corporation Tax Computation)
In reality, most sets of accounts will have fewer tags than the number in the minimum tagging lists as an item need only be tagged if it exists in the accounts.
In addition, there is a UK Common Data Taxonomy which provides labels and tags for items such as the name of the entity, language, currency, reporting period etc. which have to be incorporated separately.
For the parent company of a group of companies, the requirement is only for the parent entity information to be tagged. Tagging group items is possible, however, this must be completed within the group dimension of the taxonomy so that it is properly identified as a group item.
What should I do?
- use the HMRC product ‘Online Tax Return – CT’ to ensure that accounts are submitted in the required iXBRL format (not readily applicable to the majority of companies);
- take statutory accounts prepared in MS Word or MS Excel and embed the relevant XBRL tags using software available for the purpose;
- modify the statutory accounts preparation process to produce the reports from existing financial reporting software products which have been upated for the purpose; or,
- use a specialist outsourced provider to tag the company’s final accounts.
Large groups of companies are likely to benefit from creating tagged templates for use within the group to minimise the level of individual tagging required. Current assessments indicate that one person experienced in financial reporting will take one day to tag a standard 20 page set of accounts. Consideration therefore has to be given to the availability of a suitable resource within an organisation to ensure compliance within the submission timeframe.
It is currently anticipated that HMRC will be lenient to an extent, for the first two years of this new regime, and will not penalise companies for problems that occur as a results of the transition to e-filing using iXBRL.
International Standards on Auditing (UK and Ireland) do not currently impose any requirements for the auditor to check XBRL tagging of the financial statements as part of the annual audit process. The Auditing Practices Board intend to review these requirements, and the extent of auditor involvement, as needs and expectations of the users of financial information develop.
Auditors providing additional assurance services or non-audit services by way of performing the tagging exercise will be required to consider threats to the auditor’s independence in the form of a management threat or a self review threat.
The next step
If you would like further information on XBRL and the potential implications for your company, or you would like to arrange a meeting to discuss your specific requirements, please contact Colin Jones, partner in our London office, or your usual UHY Hacker Young partner, via the Locations & People section of our website.