Online filing of Corporation Tax returns with statutory accounts in XBRL from 2011

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1 1 November 2010 Online filing of Corporation Tax returns with statutory accounts in XBRL from 2011 Online filing requirement Online filing to HMRC will be mandatory for all UK companies from 1 April This includes: CT600 in XML Tax computation in ixbrl Statutory accounts in ixbrl Other documents in PDF Companies therefore need to consider carefully the interdependencies of their tax and financial reporting functions and processes. From 1 April 2011 for any accounting period ending after 31 March 2010, UK company tax returns must be filed online to HMRC in Extensible Markup Language (XML) with accompanying statutory accounts and tax computations in the inline variant of the Extensible Business Reporting Language (XBRL) format known as inline-xbrl (ixbrl). What are XML, XBRL and ixbrl? The idea behind XBRL is simple. It is a standard computer format for representing business reporting information. It uses a unique identifying tag for each individual item of financial information. It is built upon the more general extensible Mark-up Language (XML), the standard computer format for exchanging information online. XBRL extends this to enable easier analysis and comparison of financial information. ixbrl provides for what you see is what you get by preserving presentational aspects, such as branding, formatting, and terminology. This should allow HMRC s inspectors to see exactly what companies and agents file and is the format required by HMRC. What is the impact on UK companies? It is the responsibility of companies to be ready to meet HMRC requirements. Therefore: Companies will need to ensure their internal processes and systems that support statutory accounts and tax return preparation will enable them to meet HMRC requirements. If the company outsources preparation of its statutory accounts or tax return to a third party provider, the accuracy of submissions remains the responsibility of the company, so the company will need to ensure that together they will be able to meet HMRC requirements. It is important to raise awareness of the changes to company finance departments, as well as to tax departments, as there will be a need for coordination between tax and financial reporting processes.

2 Ernst & Young s experience of implementing XBRL in other countries has shown that XBRL tagging of statutory accounts and tax returns is a complex process involving careful judgment by financial reporting and tax specialists. What should companies be doing now? Companies need to understand the proposed reporting requirements and their implications. Ernst & Young has been actively involved in the consultation process and can advise companies on the proposed changes and what needs to be considered. Accounting system and dedicated software vendors are currently upgrading their products to respond to the changes. It is important for companies to assess their current processes and consider what would need to change to implement XBRL. Companies should evaluate their technology needs and develop a project plan to comply with the online filing requirements. There are a number of options available to companies to ensure they are able to comply with the future online filing requirements: Developing or upgrading current in-house or third party systems and processes for statutory accounts and tax return preparation to be fully compliant with online filing requirements. Implementing dedicated software that to enable the company to prepare and tag ixbrl formatted versions of their statutory accounts and/or tax returns after completion in existing formats, such as Microsoft Word or Excel. Note that is more likely to apply to statutory accounts than tax returns and computations due to the widespread use of tax compliance software that will be updated for online filing requirements. Outsourcing to a third party provider the conversion or tagging of existing statutory accounts and/or tax returns into the required formats. Outsourcing to a third party provider the preparation of statutory accounts and/or tax returns. *HMRC website maintains a list of vendors whose software has been recognised as meeting HMRC s filing requirements IT Managers will need to review their accounting packages, either with their IT supplier, or their in-house team to ensure they are, or will be, compliant Business Managers will need to review the company s internal business processing, including staff training, to ensure the way data is gathered that supports the accounts is still suitable. HMRC letter to company Finance Directors, May 2009 Online filing of Corporation Tax returns with statutory accounts in XBRL from

3 How can Ernst & Young assist? As there are many ways to approach online filing, there are also many ways we can assist you in becoming compliant with the new rules: Type of service Service description Company benefits Advisory Assessment of current systems and processes related to statutory accounts and CIT returns Evaluation of in-house solution including technology options and process change Assistance with implementation of technology and process improvement, as well as change management Project management Retain full control of tax return and statutory accounts preparation Standardise, improve, integrate and automate with other internal processes and systems Enable further data analysis and reporting from online filing enabled in-house systems Assurance Attestation (e.g., Agreed Upon Procedures) to validate the actual XML/iXBRL files submitted to HMRC Receive assurance and manage risk in relation to the technical content of files submitted to HMRC Outsource Tax return preparation including online filing compliant tax computations Conversion of in-house produced tax returns and/or statutory accounts to required XML/iXBRL formats Statutory accounts preparation and conversion to ixbrl format Our existing service is able to meet the new online filing requirements in relation to tax with little to no need for additional company action Limited impact on existing statutory accounts process Does not require your resources to develop detailed knowledge of how XBRL works Allows your resources to focus on more value-added work Remove or reduce the work to prepare statutory accounts in-house and free up internal resource to focus on more value-added work Online filing of Corporation Tax returns with statutory accounts in XBRL from

4 Our experience Ernst & Young was a founding member of XBRL International and has been providing XBRL services to governments and regulators for nine years, and more recently to preparers. We have a highly-skilled team of individuals with in depth knowledge of and experience with XBRL, as well as relationships with a range of software vendors specialising in XBRL creation and management, tax compliance and statutory accounts preparation. We have expertise in assisting companies with the operational management of financial reporting and tax compliance both from an improvement advisory perspective, as well as through outsourcing all or part of these processes. We have worked closely with HMRC during their consultations, the development of their systems and we have assisted with the design and review of the UK GAAP and IFRS taxonomies. Further information Sean Callaghan +44 (0) Neil Harrison +44 (0) Saskia Hawkins +44 (0) Helen Henshaw +44 (0) Ken Mackenzie +44 (0) Adam Ross +44 (0) Ben Smith +44 (0) Online filing of Corporation Tax returns with statutory accounts in XBRL from

5 Additional information on the HMRC mandate How will HMRC use the data? HMRC believe that online filing will enable: Improved risk profiling and a reduction of the administrative burden on compliant companies More effective interventions with fewer requests for information. What about Companies House? Companies House has been able to receive simple dormant and audit-exempt company filings in XBRL format for several years. In September 2009 it made a joint statement with HMRC that indicated they are fully committed to aligning their filing services as closely and as quickly as possible. However, Companies House has not announced any plans to make online filing of statutory accounts compulsory. Companies House have said that in the first year where ixbrl accounts are filed to Companies House on a voluntary basis only an image of those accounts will be made publicly available. In other words, the XBRL tags will not be published. What are the final HMRC requirements? The Online Filing Regulations became final on 1 January 2010 with Board Directions signed and taking effect shortly thereafter. Companies that are required to prepare accounts under the Companies Act 2006 and businesses who have to prepare accounts under the legislation governing certain financial institutions such as Building Societies, Friendly and Industrial and Provident Societies and miscellaneous Insurance Undertakings will have to file those accounts using the ixbrl standard. Where an entity incorporated outside the UK is resident in the UK for tax purposes, it will have to deliver its company tax return online and accounts must be sent using the ixbrl format. A non-resident company trading in the UK through a permanent establishment, branch or agency must send any trading or profit and loss account and any balance sheet required to be delivered as part of its company tax return in ixbrl format. Unincorporated associations (such as clubs, voluntary organisations, etc.) will be able to send their accounts using ixbrl if they wish to do so, but also have the choice of sending their accounts as a PDF attachment. Parent companies are required to send their individual accounts using ixbrl but may choose to send their group accounts as a PDF if they wish. Alternatively, a company can send a single consolidated set of account, provided that these contain the same ixbrl information about the parent company itself as would have been provided by ixbrl tagged individual company accounts. Companies under a winding up order, in administration or in administrative receivership are exempt from online filing. HMRC have confirmed that companies in members voluntary liquidation are not exempt. The majority of charities will fall outside the requirement to send their accounts using the ixbrl format. Only those charities incorporated within the Companies Act (including trading subsidiaries) will be required to do so. Amended returns can, but do not have to, be submitted online. Additional information on the HMRC mandate 5

6 What is a taxonomy and how are they used? XBRL works through tagging individual items of information with machine-readable codes, known as XBRL tags. The tags are contained in a taxonomy, a structured dictionary of tags relating to the financial reporting purpose. HMRC currently accepts documents tagged/mapped against the following taxonomies: UK GAAP 2008 for test purposes and voluntary ixbrl submissions ahead of the compulsory implementation UK GAAP 2009 final, ready for use UK IFRS 2009 final, ready for use (distinct from the IASB s IFRS taxonomy, which is not supported) CT 2009 final, validity tax year CDT 2009 Common Data Taxonomy imported into the UK GAAP and UK IFRS taxonomies. Will also be required if filling against another jurisdiction s taxonomy, see note below. Additionally, HMRC expects to be able to accept ixbrl accounts that have been tagged using other jurisdictions taxonomies which will be identified in a separate list due to be published soon. This will be necessary to cater for the filing requirements of overseas companies that are tax resident in the UK, as well as (potentially) those taxed as having a UK branch, permanent establishment or agency. The UK-IFRS taxonomy published on 31 January 2010 included additional tags that were not found in prior versions and are commonly referred to as extensions. These additional tags are specific to the banking, investment fund, and extractive industry sectors. HMRC will require banks, investment funds and oil, mining and gas companies to use the additional elements appropriate to them on a mandatory basis from Additional tags will also be needed in the UK-IFRS taxonomy for the insurance sector. Additional insurance tags will be developed once the significant changes to the way that insurance companies prepare their accounts, expected in 2012, are finalised. A UK-Charities taxonomy is also due to be published this year. Additional information on the HMRC mandate 6

7 What is the latest HMRC guidance? HMRC have been raising awareness about the new requirements and how they will operate them through a series of leaflets, articles and road shows. For the first two years of XBRL mandated use, up to 2013, HMRC has set a reduced tagging requirement, commonly referred to as minimum tagging, to help companies adapt to XBRL and to limit effort involved in manual tagging. Nonetheless, companies are encouraged to use the full tagging set from the start. For statutory accounts minimum tagging requirements for UK GAAP are 1,253 out of a full list of 5,292 elements for 2009 (excluding the 1,028 common data elements which will apply to both full and minimum taxonomy lists) and UK-IFRS minimum tagging requirement is 1,629 elements out a full list of 3,820 (again excluding the 1,028 common data elements that are to be used in all cases). The additional tags for certain sectors note above have not been included in the UK-IFRS minimum tagging list per se because HMRC claims that most commercial Final Accounts Production software packages do not provide for these specialist requirements. Companies can choose whether to use the full list of tags, or the minimum tagging core list along with the required industry specific tags. The minimum tagging requirement for Corporation Tax computations (1,207 out of 4,549) is also voluntary but, unlike with the accounts, there is no expiry date on this position. A date element or fact must be tagged against the tag with the narrowest definition, where available in the appropriate taxonomy. If no suitable tag is available to represent a particular item of data in a financial report, then the item may be left untagged and simply be represented by ordinary text in Inline XBRL. The use of preparer created extensions for filing to HMRC and Companies House is discouraged by HMRC. It is open to HMRC to treat failure to meet the required standards of accuracy and completeness as failure to deliver that return. However, HMRC have announced that they will apply a soft landing with regard to penalising companies that have made mistakes in tagging seeking to help companies correct errors and ensure that they are not repeated going forward. Any exceptions to this would involve a wholesale careless approach to tagging. The soft landing period will also last until 31 March HMRC does not require the company s auditor to provide assurance on the XBRL tagging of the information provided. Currently XBRL tagging is not within the scope of an audit performed under UK accounting standards. However, the Accounting Practice Board (APB) intends to keep the use of XBRL by preparers of financial information and the role of auditors in relation to it under review. Additional information on the HMRC mandate 7

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