HM Revenue and Customs (HMRC) has made it compulsory for all organisations filing CT600s, regardless of size or ownership status, to file both entity accounts and tax returns for accounting periods ending after 31 March 2010 online in an electronic format called iXBRL.
The majority of companies, no matter how large or small, tend to produce their accounts manually using Microsoft Word, Excel or similar applications. In order to comply with HMRC's deadline and produce a viable submission, they may well have to re-engineer their in-house accounting processes and implement new systems capable of producing company accounts suitable to be converted into iXBRL format and to be appropriately "tagged” to allow HMRC to analyse the information.
So what are the options for business? Essentially there are two approaches:
- Organisations can convert prepared statutory accounts into iXBRL ready to be tagged; or
- They can redesign the statutory accounts preparation process to produce financial reports in XBRL
For smaller organisations - and perhaps those for whom the deadline is looming - the first approach may be the best option. This is likely to be cheaper than opting for a more comprehensive overhaul of their systems and processes.
Larger, more complex organisations may find that such a conversion option is only feasible in the short term, if at all. Looking further ahead, converting accounts from one format into another may well become such a burden and introduce unacceptable risk of errors that it becomes preferable to implement a fully automated end-to-end approach. Either way, the implications of this requirement should be factored into IT, Finance and Tax function plans for the forthcoming year.
Senior Accounting Officer Sign off
For the bigger businesses in the UK, the tax and IT headache is not just about managing XBRL reporting. The £200m+ turnover corporations viewed as "large businesses” by HMRC will be required to nominate a "senior accounting officer” who will be held personally responsible for the adequacy of tax accounting arrangements.
For the first time, there is a legal obligation for an individual to attest how robust the end to end tax arrangements are within their organisation.
Failure to comply can land the senior accounting officer with a personal fine of up to £10,000 together with reputational damage and the prospect of cash penalties for the business.
Managing a successful transition to XBRL reporting will be an important aspect of the senior accounting officer's sign off on the tax systems but the certification goes way beyond this.
The requirement for a senior officer to take personal responsibility for the organisation's tax processes marks a shift in approach from HMRC. Their focus is no longer purely on a taxpayer's returns but on the fitness of the taxpayer's arrangements for preparing that return, including all the information systems leading into it. The tax authorities now care about the process and the systems as well as the end result.