Business reporting language
Roger Chester demystifies online filing of corporation tax returns and annual accounts to HMRC by charities and their subsidiaries
This subject has been a cause of much debate in the charity sector since it first surfaced in January 2010. From 1 April 2011, HMRC required all organisations that had to submit a corporation tax return form CT600, including computations and annual accounts, to be in the format of a computer language file called In-line Extensible Business Reporting Language (iXBRL). This initiative is part of the government’s move towards efficiency through using the latest information technology, and the initiative of course includes charities and their trading subsidiaries.
A common format
The concept behind iXBRL is that a computer generated file containing data and not just images, as in a PDF file, is uploaded by the tax payer into a central database where it can be checked, measured and compared. Let us imagine that we are the head office of a multi-national company with many subsidiaries all over the world. The multi-national has a requirement to produce consolidated accounts. The problem is that it receives a great pile of word documents and spreadsheets. So it tells all of its subsidiaries to produce their information in a common format – iXBRL – it imports them into one database and bingo – consolidated accounts. Looking for efficiencies, HM Treasury and HMRC decided to apply the same concept to the online filing of corporation tax returns.
As we have seen, using iXBRL depends on the use of a common format of information. This format is produced by HMRC and is called a ‘taxonomy’. The taxonomy is written around accounting rules which in the UK are UK Generally Accepted Accounting Principles (UK GAAP), this includes both accounting principles and company law. This explains why any incorporated charity or charity with an incorporated trading subsidiary is caught but from a corporation tax perspective only if they have a requirement to file a corporation tax return. However, charity accounts which are governed by the Charities Statement of Recommended Practice (SORP), and also those of Registered Social Landlords (RSLs) and the Higher Education Funding Council for England, do not follow the format of the Companies Acts. A special taxonomy for charities has been developed by HMRC.
Tagging
How is information actually filed then? To begin with most charity accounts are produced in a word document. This document is opened up in word alongside the taxonomy from the HMRC website. Information required by the taxonomy is tagged (linked) from the accounts document to the taxonomy. After this has been completed the taxonomy produces an iXBRL file which is transmitted to HMRC. An example of the type of information required by the taxonomy is the number of trustees which is found in the trustees’ annual report (TAR). The nearest analogy to tagging is the linking of one cell to another in a spreadsheet. The CT600 iXBRL information will either be produced by your tax agent (tax accountants) if you use them from their software, or you can do it yourself using the free HMRC software.1
Concession for small charities
It has to be admitted that HMRC was a little late into the game as far as charities are concerned. Accordingly HMRC has made a concession recognising that the accounts template included in the free software may not be suitable for small charities. Until HMRC provides free software that is suitable for smaller charities, HMRC will continue to accept accounts from smaller charities in PDF format.2 Corporation Tax computations must be filed in iXBRL format but the free HMRC software should be suitable for these. Small charities are defined as ones where, together with any wholly owned subsidiaries, the combined income does not exceed £6.5m for the accounting period but only relating to submission of charity accounts.
To put it simply smaller charities can still file their accounts in PDF format so they do not have to be tagged into iXBRL. But theywill have to file their subsidiary accounts, and corporation tax returns for both their charity and subsidiary, in iXBRL format and can do this using free software from HMRC. Larger charities above £6.5m income will have to submit both accounts and tax computations in iXBRL. The logic for filing subsidiary accounts in iXBRL is that as these are Companies Act accounts they do not follow the charity SORP.It is the intention of both HMRC and Companies House to have a common filing system,3 but as yet I am unable to ascertain how far this has progressed in relation to smaller charities.
In praise of consistency
Finally, although it may seem an additional complication to file accounts in iXBRL I can see some very real values in it. There will at least be a degree of consistency that has never existed previously. As anyone who has researched into charity accounts will tell you, although they follow the SORP there are wide variations in presentation and content. Imagine if the iXBRL accounting data were in the public domain, after all it is really through the charity commission website – what a resource we would have then.
Note: For further guidance please see:www.hmrc.gov.uk/ct/ct-returns-format-accs.pdfwww.hmrc.gov.uk/ct/ct-online/file-return/online-xbrltag.pdf
1. www.hmrc.gov.uk/efiling/ctsoft_dev.htm
2. www.hmrc.gov.uk/charities/guidance-notes/chapter6/partb.htm#69
3. www.companieshouse.gov.uk/about/miscellaneous/jointFilingFAQs.shtml
Author: Roger Chester
Roger Chester is head of finance and administration at Lionheart, the benevolent charity for RICS members and their families.
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