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The detail

XBRL stands for eXtensible Business Reporting Language and is an international open standard for the electronic communication of business and financial data.  In simple terms XBRL facilitates the tagging of underlying financial information to a predefined standard list of items: a Taxonomy.

HMRC is introducing online XBRL filing following a review of HMRC’s Online services (published in the Carter report in March 2006).  The main recommendation of this report was that all companies should be required to file their company accounts and tax returns/computations online in an XBRL format.  The benefit to HMRC of introducing this is it will allow an automation of the review of tax returns.  It will allow them to run immediate comparatives and queries on a year by year or sector basis in order to detect ‘anomalies’ and launch further enquires.  They believe it will allow them to open more targeted and focused enquiries focusing on the higher risk areas.  XBRL filing has already been adopted by many worldwide regulatory bodies including some in the US, Belgium, Japan, Australia and the Netherlands.  Therefore its introduction in the UK is not out of the ordinary.

So what?

The new filing requirement will affect any accounting periods ending after 31 March 2010 for returns filed after 31 March 2011.  The later date is key and companies, to a certain extent, can control the first period that XBRL filing will take effect.  For instance if your company has a June 2010 year end by ensuring the return is filed before 31 March 2011 then reprieve from the new rules could be obtained until the June 2011 year end.

Why is this being seen as a headache by many corporates?  The XBRL submissions required for an individual entity includes the CT600, the tax computation and the statutory accounts.

The impact of this is that, although tax software providers are developing XBRL solution upgrades to their software, there is currently very few XBRL enabled accounts production software packages available.  Additionally, many companies use Word or Excel, rather than accounts software, to produce their accounts meaning that even when accounts software is upgraded this will not be of assistance to them.  This is why this is being seen as a headache by so many corporates as it will require the purchase of XBRL conversion technology as well as corresponding changes to existing finance processes.

Companies will be expected to work from a number of Taxonomies; these are basically extensive lists of data items, i.e. turnover, cost of sales, name of director etc.  For example the HMRC Tax Taxonomy will have circa 4,600 tags, the UK GAAP taxonomy will have circa 4,500 tags and the UK IFRS taxonomy, which will be finalised in December, will have considerably more tags. Companies will be expected to drill through these lists to ensure they tag the information from their accounts to the corresponding tag.  HMRC has made concessions in the first 2 years for entity accounts, which will give companies the option to focus on a minimum list of mandatory tags – 1200 tags rather than 4000+.  The general ‘rule of thumb’ is that companies are not required to disclose anymore than they are currently required to do under the relevant GAAP.

HMRC also issued further guidance recently with regards to the treatment of Group accounts, Branches and certain sectors not adequately catered for by the existing UK GAAP and IFRS taxonomies.

There are three likely routes to XBRL solutions that companies may use:

  1. Adding on a ‘bolt-on’ piece of software to convert the current MS Word and/or Excel format accounts to XBRL format;
  2. Changing the end-to-end process/system via which accounts are produced to include a package that creates XBRL compliant statutory accounts;
  3. Using the HMRC solution – this will only be applicable for the smallest companies who submit short form CT600s (those companies with ‘straightforward tax affairs provided the form has all the entries that a company needs to make’, as described by HMRC).

Typically, we are seeing most clients choosing the ‘bolt-on’ technology route since this is the least disruptive, i.e. the existing accounts process remains largely intact.  This is also the least expensive option and most scaleable option.

A few of the largest companies are looking at XBRL as an opportunity to completely re-engineer and streamline their accounting processes, i.e. automate accounts production by integrating with underlying consolidation/ERP systems at the same time as integrating XBRL requirements.  Generally, this route is applicable for organisations looking for wider benefits, not just XBRL compliance.

It is also worth noting that the original proposal was that the requirement of online filing for tax returns and company accounts would be aligned.  This would mean that a corporation tax return would need to be filed three months earlier and would create issues for those corporates that file the accounts on, or close to, the deadline as it would, in most cases, mean it could be difficult to file the tax return on time.  It is worth watching this space to see if any further announcements are made on this, as this would have a significant impact on the process and timing of preparing tax computations.

Ultimately many people think this is not a good demonstration of how HMRC plan on reducing the administration burden associated with tax returns – although they do appear to be reducing their burden!  There are suggestions that this is a good time to think about simplification – does your group need to prepare as many tax returns as it does currently? Can you reduce your administration burden?  For example, there are many groups with legacy companies that have a few transactions but actually are no longer needed.  This could be an excellent driver the reassess your structure and tidy up unwanted companies.

This is not an issue that can be filed away and be picked up at the time the return needs to be filed.  For larger clients that are going to change their end to end process via which accounts are prepared parallel runs of the system are recommended.  Even for smaller companies we foresee there may be some issues practically filing returns on line with several test submissions being required.  What this means is waiting until the last day of the period to file your return is unlikely to be a good option!  So what should you be doing?  Firstly, this issue is not going away and it is complex so it needs to be high on your agenda.  You should be talking to your tax advisors, as well as your and understanding what solutions are available and what would work best for you.  KPMG are already working with numerous client assisting them with XBRL compliance and have one the few compliant iXBRL tagging solutions on the market.

David Bywater is an Associate Partner, Corporate Tax, at KPMG LLP.  Rebecca Newnes is a Manager, Corporate Tax, at KPMG LLP.

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