To defer or not to defer

CAMPAIGNERS ARE HOPING history will repeat itself as they push for a delay to the way companies make their tax returns.

Six accountancy institutes have banded together to request the Treasury defer the deadline for corporate tax returns to be submitted in a new digital format online.

From 1 April all corporation tax must be filed to HM Revenue & Customs using new data-tagging technology known as iXBRL (inline eXtensible Business Reporting Language).

The institutes wrote to the exchequer secretary, David Gauke, requesting the government defer implementation by six months.

Trying to convince government to back down on an imposed deadline may sound improbable, but some experts in the field are giving the coalition of institutes a 50/50 chance.

There has been a precedent for deadlines being moved. An incoming tax regime for contractors and subcontractors in the building industry was delayed by 12 months in 2006, following pressure from the industry.

John Healey, the then exchequer secretary, delayed the introduction of the Construction Industry Scheme (CIS) following conversations with the DTI and the Construction Confederation.

However, the deciding factor on delaying implementation had little to do with outside pressure, but from HMRC itself failing to be ready for the deadline. It transpired that the taxman’s technology, which would run over the internet, was not yet equipped to deal with the incoming tax regime.

According to HMRC it is ready for iXBRL, which is also designed for use over the internet. There are some software readiness issues surrounding iXBRL – although not from HMRC but software providers. Some IT companies have been late to market and Sage, one of the largest, will not release its fully functioning version before the deadline. The taxman claims it is offsetting these obstacles by adopting a “soft landing” approach and will refrain from issuing penalties on businesses that have made a reasonable effort to file.

Although HMRC may have an answer to the software problem, iXBRL remains a huge compliance burden to organisations. Getting to grips with what is undertaken by the software, checking the correct data has been processed and processing manually where needed, is time consuming for tax filers.

There are also political considerations for the government. Reducing compliance red tape for businesses is one of the aims of the coalition government. It has already taken steps in this regard with the deferral of the Bribery Act’s implementation.

The act reforms legislation which will allow courts to respond quicker to bribery charges in the UK or abroad.

The government deferred introduction for the second time. Justice secretary Ken Clarke had already pushed the legislation start date back to April 2011 from October 2010. Earlier this month the Ministry of Justice (MoJ) announced it was to be pushed back again so it could work on a practical guide for businesses, although no introduction date has been set.

Similar to CIS, the deferral of the Bribery Act is due to the government needing more time to prepare for implementation, and not the private sector, which is the case with iXBRL.

Although it’s not looking good for those seeking a postponement for iXBRL, campaigners have one more trick up their sleeve.

Though iXBRL is intended for digital tax returns, the returns come in two parts. The accounts and the tax computation. The request for a delay is just for the way the new computer language deals with company accounts. This is by far the most complex part of the work and yet the taxman does little with the data. Experts say it could do without iXBRL accounts for six months. Tax computations, on the other hand, are critical to HMRC and all companies should have the technology by now to handle those.

However, many experts claim HMRC could take a tough stance as technically it has given the software industry and the accountancy profession five years to prepare.

Unfortunately for tax advisers, most software providers were late to enter the market. Many released products at the end of last year and the beginning of this year, giving users less than six months to integrate new technology into their tax filing habits.

The introduction of iXBRL is down to Lord Carter’s proposals put forward in a report published in 2006. Aligning all information with iXBRL means comparison of financial data is easier and could help HMRC identify tax irregularities quicker.

However, Carter’s report also stressed iXBRL would be most successful only if both software developers and companies fully tested the technology before using it.

iXBRL is not just about installing new software according to Bivek Sharma, technology partner at KPMG. Staff must be trained on how to use it and how to provide assurance on filings, he said.

One piece of code in the wrong place could render an entire tax filing incorrect. Advisers will have to go through the documents with a fine tooth comb trying to find the mistake, rectify it and submit it again.

Experts are in agreement that there are long-term benefits to iXBRL. However, it seems a black cloud is hanging over the deadline, not the idea.