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Online Company Tax Returns and iXBRL: The end of transition?

Online Company Tax Returns and iXBRL: The end of transition?. A talk to AAT Birmingham Branch 8 th May 2013 Steve Coad Technical Advisor – CTSA Machinery HMRC (CTISA). What we’ll cover tonight. Some background to mandatory online filing using XBRL A bit about XBRL and its benefits

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Online Company Tax Returns and iXBRL: The end of transition?

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  1. Online Company Tax Returns and iXBRL: The end of transition? A talk to AAT Birmingham Branch 8th May 2013 Steve Coad Technical Advisor – CTSA Machinery HMRC (CTISA)

  2. What we’ll cover tonight • Some background to mandatory online filing using XBRL • A bit about XBRL and its benefits • What HMRC is doing with the data • For policy formation and monitoring • For risk analysis and tax compliance • For debt analysis and recovery, etc • Current challenges – end of transition and new accounting standards • HMRC’s digital strategy and some thoughts about the future

  3. CT returns: the digital journey • Online filing becomes possible • 2007/8 10% filing online. Lord Carter’s report • 2009 Online filing with XBRL becomes possible • April 2011 Online filing with XBRL becomes mandatory • First two years 3.5 million online returns received including XBRL data • 85% using one of about 50 commercial products to file; 15% using free HMRC product designed for companies with the simplest affairs • Part of the HMRC Digital Strategy

  4. The experience so far • Two years to 31 March 2013 • This was a major change. A big collaborative effort. • Some companies filed early year 1, to avoid the online requirement • But great majority filed successfully, including required iXBRL elements • 3.5 million compliant online returns successfully delivered so far What about the quality? • HMRC announced a transitional “soft landing” period, aiming for maximum successful filing first time round • Early sampling suggests most achieving acceptable quality • Software products are doing a good job of tagging automatically • Many agents are putting a lot of effort into making it even better

  5. The Policy context: Why are we doing all this?

  6. The Past: preparing data

  7. The Past: processing and storing data

  8. The Past: analysing data

  9. Why XBRL? • Online filing has been uncontroversial, though some have questioned mandation • The benefits of XBRL have been less well understood • What is “iXBRL”?

  10. So what is XBRL? What’s in the tin?

  11. Amount of data To 31 December 2012 we had received 2,754,868 sets of accounts 15,327 IFRS submissions 2,987,206 sets of computations 186 million pieces of accounts information 85 million pieces of computational information Spread across 7,823 XBRL tags Of which 1,722 have been used more than 1,000 times Usage not limited to Corporation tax risk

  12. What does HMRC do with all that data? We are using and learning • Government Gateway validations – is it complete? • Automated risk rules run on all returns. Technical risking group. • Results flag risks, which are fed to Inspectors for review. • Case-specific risk checking, using Magnify tool • XBRL risks looked at with other risks • Quality of tagging. Central review. Raise issues with software provider / agent • Looking for incremental improvement over time

  13. Policy monitoring and formulation • For the first time, we can use and analyse all the information in accounts and computations efficiently • This will allow much better sector understanding • Analysis of data to monitor the effects of Policy and law changes • Inform Policy development, identify issues and opportunities • Better business intelligence for Treasury • Also key to better tax risk analysis and case identification. The following slides give some examples • Huge wider potential in other areas of HMRC work. For example, to support debt analytics and recovery action. See slides further on.

  14. Using XBRL data for risk analysis • The following slides give some insight into what we are doing here

  15. External Submission of CT Return, Accounts & Computations Results Magnify XBRL FEEDBACK XBRL Tags Risk Rules CT 600 Enquiry Officer Government Gateway Lists Produced Risk-flow Manager CT Data BDCT, Connect, TPI,BVD

  16. Exchange rates used

  17. Risk Rules for Development Claim to roll over relief Deferred gain Claim to other CG relief Depreciatory transaction noted Claim to foreign tax relief in the CG comp Negligible value claim Section 171A transfer out Section 171A transfer in CG loss relief greater than £25,000 Computation noted depreciatory transaction Chargeable gain exceeds £100,000 March 1982 valuation used 1965 CG valuation used March 1982 indexation claim Indexation allowance on March 1965 valuation CG proceeds exceed £500,000 Chargeable gain less than £25,000 Date of disposal matches accounting period date

  18. Report of the independent auditors to XXX Limited 4th April 2012

  19. Improving HMRC’s debt analysis and recovery • The following slides give some insight into what we are doing here

  20. Overview of ADEPT Collections System (IDMS) Provides 6,000+ HMRC staff with ability to collect by letter, inbound/outbound telephone, field force, legal proceedings Decision Engine (Strata) Optimise collections strategies using ODS data Head of Duty Systems Debt data fed from each tax system: Corporation Tax, VAT, Self-Assessment, PAYE, Tax Credits Debt Analytics System (ADEPT) Operational Data Store (ODS) Provides a resilient and high performance “current” view of analytical data to inform operational systems Raw Debt Data History retains all data for 6 years after debt closure Banking Systems Payment data fed through to each Head of Duty system Single CHAPS payment Standardised Debt Data all raw data aligned to a standard data model Direct payments by customers Debt Collection Agencies Performance Data interactive data sets containing KPIs and other metrics Analytical Modelling produce predictive models of debtor risk & behaviour, analyse collection strategy effectiveness Debt data Itemised payments Debt Analytics Portal provides business with self-service access to performance information and dashboards

  21. The future: Using predictive models to make decisions 4. Build models to combine predictive data Build and test multiple models on historical data not used in step 3 3. Search for predictive data Business insolvency increases for companies having multiple VAT and PAYE payment plans 2. Understand baseline trends Business insolvency estimated as 1.1% nationally by Experian 1. Define a target for the model to predict Predict whether HMRC will incur tax losses due to company insolvency 5. Add the prediction to our decision rules Insol Risk L M H Specialist . . Tel Visit . Letter . .

  22. The Present: channels – job done?

  23. Beyond “soft landing”: What happens after transition? • There will be no dramatic change • HMRC will continue to seek to encourage and support • Increasing emphasis on quality and quantity of information • No appetite for rejecting returns, unless it’s really necessary Full and accurate tagging reduces the risk of unnecessary enquiry • Automated checks flag risks. Less tagging = more flags = closer attention • Good quality, up to date software is key Evolution not revolution – no change without consultation • New taxonomy for tax computations and detailed profit and loss account from Autumn 2013 • New taxonomies being developed for FRS101 and 102 from 2015. Early adopters to use existing IFRS taxonomy to tag • “Minimum tagging” will wither on the vine as new taxonomies come through

  24. New CT Comp Taxonomy • Uses latest XBRL standard • Easier to use • More focused • Can be used for APs ending on or after 1 April 2013 • Mandatory for APs ending on or after 1 April 2014 • NO minimum or Full List. All within minimum tagging requirement

  25. New Detailed Profit and Loss Taxonomy • Can be used for APs ending on or after 1 April 2013 • Mandatory for APs ending on or after 1 April 2014 • Used to tag DPL account in Accounts or computations • All within minimum tagging requirement • Structure allows all of the DPL to be tagged.

  26. Current Requirement • CT Return CT600 & supplementary pagesAccounts Ct Computation • Format CT600 – XMLAccounts & Computations - IXBRL • Accounting Standards International Financial Reporting Standards – IFRS UK Generally Accepted Accounting Practice – UK GAAP Financial Reporting Standard for Small Entities – FRSSE • XBRL Taxonomies CT Computational TaxonomyUK IFRSUK GAAP

  27. Financial Reporting Changes • New Reduced Disclosure IFRS • New UK GAAP • Revised FRSSE • EU Micros Directive

  28. Reduced Disclosure IFRS • FRS 101 • Reduced disclosures from EU-adopted IFRS • Voluntary • Effective date - accounting periods beginning on or after 1 January 2015 • Early adoption possible

  29. New UK GAAP • FRS 102 • Unlisted Entities • Based on IFRS for Small and medium entities • Major Change • Mandatory for accounting periods beginning on or after 1 January 2015 • Early application is permitted for accounting periods ending on or after 31 December 2012.

  30. FRSSE • Smaller companies continue to use FRSSE • FRSSE updated for consequential effect of FRS102 • Updated version applies for accounting periods beginning on or after 1 January 2015 • May be further aligned to new UK GAAP in future

  31. Simplified Accounting Requirements for Micro Entities • EU Directive - Member states can decide extent of implementation • Micro defined as companies that do not exceed two out of three of the following size criteria • Turnover £578,000 • Gross Assets £289,000 • Number of Employees 10 • Shorter Statutory Accounts • Exemption from prepayments and accruals • Optional for companies • Consultation 27th February 2013 to 22nd March 2013

  32. Problems and Issues • New XBRL Taxonomy required for accounts using FRS101 and FRS102 • Early adopters of FRS101 and 102 • Micro Directive – Scope and implementation date • Micro Directive - Taxonomies

  33. Post Implementation Review • HMRC is preparing a PIR during 2013 of the change to online filing • Currently being scoped. Will publish late this year • Will revisit and revalidate the assumptions in the Regulatory Impact Assessment • Will look at operational performance and customer impacts

  34. The wider context for XBRL in accounts • Joined-up services • Internally, between taxes and duties and systems • Across Government, supporting efficient services and Digital by Default Special relationship with Companies House • New services • XBRL data and the public record XBRL in the real world • A business opportunity? • Adoption in other countries • Financial services and internal record-keeping benefits?

  35. Thank you Steve Coad HM Revenue & Customs – CT Process Team Abbey House (2nd Floor, West) TelfordTF2 9RG Tel. 03000 573552 steve.coad@hmrc.gsi.gov.uk

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