Report of the March meeting
The March TPG meeting hosted vistors from HMRC discussing the progress of online services, and iXBRL for corporation tax filing, with a demo from ArkkSolutions looking at how iXBRL links into accounts.
Following the Carter report, HMRC are moving all services online and, on 8th March, gave a presentation to a well-attended meeting of the Tax Practitioners’ Group, explaining how HMRC are taking online services into the corporation tax area.
In particular, business with turnover of more than £100,000 will have to file online from 1 April 2010, as will newly-registered businesses after that date. All other VAT-registered businesses will have to file returns online from 1 April 2011 (although they can voluntarily file online already). PAYE will have to be filed fully online from 1 April 2011 as well, as will corporation tax self-assessment. Individual self-assessment is encouraged to be online but HMRC have no plans to make online filing compulsory for individuals.
The corporation tax self-assessment move to online returns will have a “soft landing” period of two years. This period will not be penalty-free but, where a taxpayer has tried to make a reasonable stab at filing and fails for reasons outside the taxpayer’s control, HMRC will disable the penalties. HMRC will define both “reasonable stab” and “outside the taxpayer’s control” nearer the time but indicated that they were thinking along the lines of the concession at the introduction of individual online self-assessment, where software providers were unable to iron out all the bugs before launch and so HMRC would disable penalties where the taxpayer filed a paper printout of a return with a printed screenshot showing that the online filing attempt had been rejected for a “commonly used reason”. For CTSA, HMRC are reviewing software monthly and will decide nearer the time what errors (if any) will require that sort of approach.
The two year period will also give taxpayers a chance to “practice” to make sure that their tagging of corporate accounts/computations is accurate as, with online filing, corporation tax payers will be required to ensure that their filed accounts and tax returns are tagged using iXBRL. This is a system for adding descriptive tags to accounts and returns entries, so that - for example - turnover is identified by a specific tag from a list (a taxonomy) so that all accounts submitted by corporate taxpayers identify turnover with the same tag. There are various ways to achieve this - most software vendors are amending their applications to comply with this requirement, and HMRC are producing an online system for very small businesses to enter the relevant information and have it tagged accordingly. Businesses producing their own accounts - either small companies using Excel or large groups with bespoke systems - will have to arrange to have their accounts tagged, either by doing it themselves or paying someone to tag the accounts and produce templates for them. Arkksolutions provided a demonstration of Excel tagging - some members of the group had concerns with how well this would work for smaller businesses with a less-than-steady grasp of the taxonomy terms.
HMRC addressed some concerns with the tagging, confirming that they are not looking to change the level of information being provided to HMRC. In particular, if information provided is outside the minimum tagging requirement, that information can be sent as text and will not be required to be tagged. That information will be available to the inspector in the usual way, as the returns and accounts will be made available to inspectors in the form that they are submitted by the taxpayer.
As part of the “soft-landing” approach, the online filing system will not reject (initially) incorrect tags although it may pick up inconsistent tagging, where the same figure is tagged differently in different sections could cause a problem. HMRC will, however, examine tags and may discuss inappropriate tagging with the taxpayer to determine whether it is an error, or something arising from their accounting policies. Where a taxpayer has used a third-party product that automatically tags accounts, HMRC expect to be able to pick up such templates in their recognition process during filing. HMRC will not accredit such products but will state that they meet standards - this will not resolve issues where the taxpayer doesn’t have the same interpretation of a tag as (a) the provider and (b) HMRC.
HMRC are trying to assist, and have managed to get the power to accept an imperfect return (which they thought they couldn’t do), to help make this work. They consider that this is merely a format, in the same way as Excel and Word. This is debatable - tagging with iXBRL provides a lot more clear information to HMRC, setting out a particular interpretation of information, which the taxpayer may not be aware of but could still be held to be liable for in future.
HMRC will be able to run analysis on the data accumulated from iXBRL to highlight areas that trigger risk rules; they will not rely on that analysis alone, but expect that it will bring to problems to the attention of an inspector faster to consider. The corollary is that HMRC expect that the use of iXBRL will reduce questions which currently arise from a misunderstanding or misreading of data in accounts. Where the data is tagged, it is less likely to be misunderstood. In addition, HMRC processes currently mean that paper input requires manual rekeying, which can lead to mistakes.
HMRC noted that data informs policy, and they currently need to use sampling; this move to iXBRL tagging will allow for faster, better advice to policymakers as HMRC will be able to pull it from the system rather than sampling. This could enable them to identify more of the commercial reality going on, potentially leading to a better informed, better focussed HMRC. Centralised processes will control analytic reporting within HMRC. There will be some ability to do ad hoc analytic reporting within HMRC, for large groups, but this will not be available to the general network of inspectors, who will not be able to create their own bespoke reports.
Attendees from in-house noted a particular problem, in that tax departments are likely to be lumbered with tagging because it is not required for accounts filed at Companies House until a year later; in-house accounts departments are reluctant to spend time/money on a project that is not of immediate use to them. The same problem could arise with companies that have different firms dealing with their audit and tax affairs.
Also discussed were some security issues related to online filing - some accountants have found that the single registration process for agents can cause problems, as they are unable to lock down access to the online filing system to selected users only. HMRC confirmed that they are looking at ways to set their own system to give some users within a single registration more access than others; third-party systems may already have this in place. HMRC have an ongoing security project with agents looking at these sort of issues.