Tax advisers brand HMRC's move to XBRL 'strange'

Source: AccountancyAge.com

Tax experts have condemned the insistence from the taxman that corporate tax returns only be made in the future using the controversial computer language XBRL.

For accounting periods ending after 31 March 2010, corporate tax returns have to be submitted using XBRL, a language that tags financial data and allows comparability. The majority of corporate tax accounts are currently filed using Microsoft Word or Excel.

But tax advisers have described the decision to adopt XBRL as both ‘strange’ and placing an ‘unwanted overhead’ on small business.

Tony Spillett, tax partner at BDO Stoy Hayward, estimated the cost of implementing XBRL could be ‘tens of thousands of pounds’ per firm.

‘There’s potentially a lot of work to be done. There’s a lot of red tape and additional burden on business so that HMRC can make life easier for themselves. It’s a real unwanted overhead,’ he said.

He added the long-term shift away from paper filing was welcome, however ‘it’s the devil in the detail and the way the HMRC has used the opportunity to capture the data in XBRL form [that] is concerning’.

According to Kevin Salter, technology partner at Glover Stanbury & Co, the decision by HMRC to adopt XBRL as the required format is strange given so few firms currently use the system.

‘We have no choice. I don’t know what their rationale for going down that route is. Various representations have been made by accountancy bodies but they’ve chosen to go their own way,’ he said.

Salter said a contracted software house will implement the necessary change on behalf of the firm but expects support fees for the service to rise as a result of the new requirement.

Tax advisers believe the change to XBRL will mean HMRC has the capacity to mine data more effectively and could lead to an increase in the number of tax enquiries.

A spokeswoman for HMRC confirmed that if a return is not filed in the new format, it will be ‘disregarded’ and treated as not having been delivered.

She said HMRC has consulted with the profession over the change and is continuing to engage with the software industry.


SG comment: There are quite clearly some financial winners and losers within these proposed submission changes. The losers are the companies that have to adopt these changes, the costs of changing their systems, the penalties for getting it wrong, and knock-on defence work with HMRC from the numbers being 'tagged'. The winners will most likely be the Big 4 and practice from increased advisory and implementation fees, and the software houses from selling their accounting / tax systems to industry. It will be very interesting to see how this all gets rolled out over the next couple of years.

Banking code of practice - impact on front office tax teams?

The U.K. government will step up its anti-tax avoidance fight Monday, with the treasury announcing plans to ask banks to sign a code of good practice, a person familiar with the matter said Friday.

The person said the treasury will publish a consultation document Monday which will urge banks to be more transparent about their tax affairs.

The voluntary code, first mentioned in the budget in April, will encourage them to enter discussions with the U.K.'s revenue and customs agency about how to comply with the spirit of tax laws.

Banks will have 12 weeks to respond to the consultation but the government is confident most major institutions will sign up, the person said. It's thought there have already been talks on the code between the treasury and leading financial institutions.

The code of practice will build on a similar mechanism that HMRC has used to minimize tax avoidance from leading U.K. businesses.

The idea is to open a grown-up dialogue where banks can privately share information about their tax arrangements with HMRC, consulting with officials on what is acceptable and what HMRC considers inappropriate. A senior bank official - preferably a board member - will be asked to sign up to the code, the person said.

But if banks don't sign up to the code - or sign but don't improve their behavior - HMRC could adopt a more intrusive approach. The treasury isn't ruling out moving beyond a voluntary code if that approach fails to change banks' behavior.

"A voluntary code based on an open and upfront dialogue is likely to yield a more genuine behavioral change," the person said.

The move comes as the U.K. battles an economic recession that has taken large bites out of government revenue and bloated the budget deficit to record peacetime levels. The deficit will be above 12% of gross domestic product this year, with public sector net borrowing set to reach £175 billion.

In a bid to plug the fiscal gap, the treasury has become more aggressive in a number of areas, leading international efforts to press tax havens to be more open and seeking to tighten the rules for so-called non-doms, people who reside in the U.K. but are not domiciled here.

There are no exact estimates of how much the government hopes to save through the new code.

The disclosure regime introduced in 2004 requires avoidance scheme users and promoters to disclose details to HMRC. Since the introduction of this regime, HMRC has acted on information received to protect over £11 billion.

Tax Technology Forum - 29th April 2009 at the IoD - Review

The first Tax Technology Forum, hosted by Talentpool Selection, was held at the Institute of Directors on Wednesday evening this week.

Following initial welcome drinks and opportunity for networking / reacquainting with ex-colleagues, the event got straight into the discussion on current issues and challenges faced in tax technology, and what we could expect in the future.

There was a panel of six experts, highly experienced in the field of tax technology and accounting systems, answering questions and queries from a room of 35 tax and/or tax technology professionals.

The panel was:

Andrew Wrentmore – ONESource Tax Provision, Thomson Reuters

Alan James – European Director, Vertex Global Tax Solutions

Graham Tilbury – Independent Tax Technology Consultant

Michael Camburn – Managing Director, Ryan & Company

Ilana Rinkoff – Director of Tax Risk Management Network

Gareth Scanlon – EMEIA Tax Performance Advisory Group, Ernst & Young


Questions raised included:

• My organisation is about to embark on a major finance transformation. We are looking to implement a standardised ERP system with a view to achieving tax automation. What have other companies done on this? We are looking for creative / visionary ideas which are currently being employed in the market.

• Under proposals introduced in the Budget, the Senior Accounting Officer will now be personally accountable for certifying that they have adequate accounting systems in place to ensure the accuracy of their tax computations or face penalties of up to £5,000 plus loss of reputation and Company fines:
- What is meant by 'accounting systems' – would this naturally include the tax technology/IT system?

• What type / size of organisation benefit most from employing an indirect tax solution?

• What are the expectations / predictions for the future in terms of how tax / VAT / PAYE technology will look? Are companies looking to automate tax to the extent they will be operating with a ‘touch of a button’ solution?

• I work in tax with a UK group. From a risk management perspective, what do you advise re filing of our documents / correspondence. What e-filing systems are available?

Quite thorough and well thought out answers were given from a combination of the panel experts. The Senior Accounting Officer personally accountable question was heavily debated, with some conflicting views on what we could expect from HMRC on this. This questions could have potentially filled the whole hour of discussion, rather than the 20 mins it was granted. This really does sound like it will be a major minefield for FDs / CFOs of large companies when the rules kick in, and it was likened to the whole Sarbanes-Oxley regime that came in a few years ago.

The question about the future outlook of tax technology and could we see a 'push of a button' solution was healthily debated between the panelists and the attendees, with the general consensus that this is slightly in the realms of Sci-fi rather than practical realism, and that international businesses are so complex than human input can not yet be replaced by clever machines.

Initial feedback from the event has been very positive:

"Thank you Simon for organizing the event, the event also clearly marked that even with the technology today and virtual communication, people like to discuss and share information verbally and face to face, thanks from Holland"

"A great evening Simon. Many thanks for organizing the event. I made a number of new friends and reconnected with some old ones too. Budget Note 62 seemed a big topic, and one that didn't fit into the time our session allowed, so I'm expecting to see plenty of debate here over the coming days once the Draft Finance Bill has been published and digested."

"Thanks for the opportunity to present; it was very worthwhile from my perspective and actually I have had quite some interest from people looking to “link-in” on LinkedIn which is great testament to such a networking event."

FDs / CFOs - are your tax controls adequate?

The Government announced a number of measures in this week's budget to ensure that businesses and individuals pay the right amount of tax and reduce the opportunity for evasion, avoidance or non-compliance. The clauses which I suspect will be mostly of interest to readers of this blog are:

- it will legislate for the publication by HMRC of the names of both corporate
and individual taxpayers who incur a penalty because they have deliberately
understated more than £25,000 of tax;

- it will establish a statutory requirement for senior accounting officers of major corporates to certify personally that adequate controls to prepare accurate tax computations are in place;

- HMRC will require those who have incurred a penalty for deliberate
understatement of over £5,000 of tax to provide more information about
their tax affairs for up to five years to ensure they have proper systems to be
able to make a correct tax return; and

- HMRC will shortly issue a draft code of practice on taxation for the banking
sector, along with a consultation document.


This will be quite a significant issue for in-house tax functions, and clearly means that the FD / CFO of a business has a personal motivation for shining a torch over the systems and controls that are in place to ensure that the tax computations process is solid, thereby delivering accurate CT returns to HMRC.

This may lead to companies upgrading and investing in better tax technology solutions to put in place greater automation over the tax computations process, thereby increasing accuracy and reducing risk of error through possible out-of-date spreadsheet methods.

This new budget development will certainly be a topic debated at Talentpool's forthcoming Tax Technology discussion evening, to be held at the IoD on 29th April.

Tesco faces new tax questions - but why?

Source: AccountancyAge.com

Tesco is facing new allegations that it set up complex structures to avoid corporation tax.

The magazine Private Eye last week published claims that Tesco had set up a financing arm in the Swiss canton of Zug.

The arm helps finance the supermarket's international business. Tax is paid on the interest on the loans it provides at a lower rate in Zug than it would be in the UK, saving Tesco £16m, the magazine said.

Tesco was quoted saying: 'This partnership is used to fund our overseas business. It is common practice for global businesses operating in other markets to fund development in similar ways. We have an open relationship with HMRC and discuss our tax arrangements and planning with them on an ongoing basis. We believe this structure is compliant with the government's controlled foreign companies legislation.'

Tesco is suing The Guardian over reports in that paper that it had avoided up to £1bn in corporation tax through a Cayman Islands structure.

SG comment: I think it very unwise for high profile publications to make allegations about Tesco's tax position. Let's look at the facts - Tesco is a multi-billion and now very international business - because of this, it employs some very bright in-house tax professionals to devise overseas structures that will mitigate the group's tax liability, all of which has to be agreed with UK HMRC. Everyone's a winner - the UK is a winner for having a fantastic and entrepreneurial employer. At the end of the day, Tesco is a commercial enterprise that will look to increase shareholder value, it is not set up to donate corporate tax to the UK treasury. The UK treasury should be thinking of ways to simplify the UK tax rules for companies, thereby stopping them from considering relocating their tax residency elsewhere. I think the Guardian are now paying the price for trying (and failing) to understand Tesco's tax position.

Vodafone Head of Tax views on tax avoidance

Source: AccountancyAge.com

Following my profile of Joel Walters, Group Head of Tax of Vodafone, on this blog back in December 2007, he has recently made some interesting comments regarding tax avoidance. He feels that tax agencies can become too obsessed with the issue.

In an interview with the Chartered Institute of Taxation and The Association of Taxation Technician's journal Tax Adviser, Joel Walters said: 'There is a danger, I think, that multi-national corporations in particular are perceived as avoiding tax in respect of how they structure their operations, and the first thing I'd say is that tax avoidance, defined as not paying the amount of tax the law requires, is actually very rare.'

He added that it was also 'very rare' for tax to drive the business decisions of multi-nationals.

The big numbers involved in tax mean a perception is created that there are big problems. 'That creates an illusion that there are significant numbers of issues. Then I'm concerned to some extent that once this perception begins to permeate the taxing agency, what tends to happen is that the focus comes on enforcing the tax loss in response to what, I think, is largely overestimated tax avoidance, and all the effort goes on enforcement in those areas.'

Vodafone has been at the centre of some of the biggest tax issues in terms of value in recent years. It is involved in a £2bn dispute with HM Revenue & Customs over a Luxembourg subsidiary created to facilitate the Mannesman merger in 2000, and faces a separate action in India too.

Tax issues are about integrity, Walters said: 'A corporation, and individual tax people, must feel that they are comfortable with the actions they have taken and the way they have gone about doing their business.'

Authorities challenge Glaxo's tax positions

Source: International Tax Review

GlaxoSmithKline, the pharmaceuticals company, is fighting two significant international tax battles with the authorities in the US and the UK. The Internal Revenue Service (IRS) is claiming $680 million in back taxes and interest over an intra-company financing assessment. The company reported in its annual results for 2007 that it is also in dispute with HM Revenue & Customs (HMRC) over transfer pricing issues.

The latest disputes with the tax authorities follow the settlement of a long-running transfer pricing dispute where – for an extended period – the IRS and HMRC could not agree on an outcome. The IRS would not accept that HMRC was the competent authority, which would have given British officials the right to be the ultimate arbiter on the issue.

The IRS is challenging deductions arising from intra-company financing arrangements for the years 2001 to 2003. GSK says it will vigorously contest the US tax authority's position.

"The issue relates to interest on intra-company financing that was taken as a deduction on the US income tax return," a GSK spokesman told International Tax Review. "We believe, supported by external professional advice, that this claim has no merit and that no adjustment is warranted. We strictly adhered to the IRS rules regarding intra-company debt and we feel very confident in our position based, in part, on external professional advice that we have received.

"Since this will potentially be a matter of litigation and we are still in ongoing discussions with the IRS, it would be inappropriate for us to discuss any more details at this time," the spokesman added.

The company said if it could not reach a settlement with the IRS, it did not expect the case to go to court before 2010. It would not comment on whether the issue of competent authority could emerge again in this matter.

At the same time, the company remains in dispute with HMRC over transfer pricing. "The dispute with HMRC is not on the same issue. We continue to be in dispute with HMRC primarily in respect of transfer pricing and controlled foreign companies (CFCs) matters for the years 1994 to date," the company spokesman said.

"HMRC has not yet formalised claims in respect of these matters and we are seeking to resolve them in discussions with HMRC. There continues however to be a wide difference between the group and HMRC positions, which may ultimately need to be settled by litigation," he added.

HMRC and the IRS declined to comment for this story.

In September 2006, GSK settled with the IRS in what was then the largest transfer pricing case in the US. The company paid the tax authority $3.4 billion in relation to various transfer pricing issues from 1989 to 2005.

Where will we (and tax) be in 50 years?

By Simon Godley

Reading through the paper this lunchtime, I had one of those 'What is happening to the world moments?'. This was mostly driven by the first article reporting a 19 year old boy in Nebraska who had been on a shooting rampage in a shopping mall, killing 8 people, and then shooting himself. Clearly this is the behaviour of a very disturbed person, however the comment that caused me to reflect the most was that his suicide note revealed that he 'just wanted to be famous'. Fame? I couldn't kill a fly without feeling tremendous guilt, but I can kind of see the logic here. The boy becomes obsessed with famous people, maybe he develops some sort of resentment and jealousy that they are famous, and the only way he can quickly have the perceived level of attention that you get when you are famous is to commit this atrocity. The fatal flaw in his plan - he never got chance to enjoy his very short lived 'fame'.

My thoughts then turned to the concept of fame. When did fame begin? My conclusion to this was when media started, when things were reported about people, when newspapers were written, and then fame possibly caught on a lot faster when people could go and see a moving picture - this is when you can really get to 'know' someone in terms of their looks and personality. Therefore, fame has evolved out of technology.

The next article was more revelations from HMRC and their breaches of security. The acting head of HMRC David Hartnett, being quizzed by the Treasury select committee, was putting the breaches down to 'systematic failure'. Sounds a bit like blaming technology to me.

Thirdly, how did the wife of the 'dead' man from the canoeing accident get exposed for potential fraud - someone had found a picture of him and her together in Panama, which had been posted on the internet, dated July 14 2006. His 'death' certificate is dated 21st March 2002. Once again, technology (ie the internet) playing a significant part in the process.

So the opening pages of today's newspaper reveal three articles where technology has played a significant role, two times in a very harmful way, and once in possibly a helpful way.

So what on earth has all this got to do with tax? Well, what about tax technology? Surely a good thing in the UK, for example, where tax and accounting rules become more and more complex. The idea of the tax compliance process being fully automated, with clever software that is coded into ERP systems, pulling out the relevant tax (and VAT) numbers and placing them in the correct fields of a tax computation. So where's the downside, is there one?

To digress slightly, I recently took a trip to France to buy some booze for Christmas, and decided to stay overnight in Boulogne. From the point of deciding to make this trip, the first time I actually spoke to another human being who was incidental to my trip was when I said bonjour to the receptionist of the hotel in Boulogne, after buying my booze. Everything I had to do up to that point, including buying a channel crossing and booking a hotel room was totally automated. So technology also removes chains of people, and hence removes jobs.

So I guess the big fear with tax technology is the impact on tax professionals' jobs. Going back to the troubles within HMRC, we have already seen 12,500 job cuts as a result of the Inland Revenue merging with HMC&E, and the plan is to cut another 12,000. This was highlighted recently in Taxation Magazine, with Mike Truman launching his 'Stop the Staff Cuts' campaign. As tax technology improves and becomes fully integrated into large PLC, are we going to see an evaporation of those working on tax compliance?

We have realised that we can't live without technology and computers, but hopefully we will realise that even though computers do clever things, and save us time, they have no common sense or imagination, something that only humans can possess.

Government caving in over CGT proposals

Source: Accountancy Age

Prime minister Gordon Brown and chancellor Alistair Darling are reportedly about to bow to fierce opposition from employer groups against proposed changes of the capital gains tax (CGT) with an offer to revive retirement tax relief for small business owners, possibly for amounts up to ₤100,000.

The turnaround comes one day after the chancellor met with the heads of yet another employer group, EEF, representing engineering manufacturers, who argued the proposed changes to the CGT would be damaging for enterprises by rewarding investment in non-business assets and sent ‘a negative signal at a time when the investment climate, especially for small firms, is set to become more difficult’.

Business owners, who are about to retire and who would be particularly hard hit by the proposed CGT changes, are likely to receive a tax exemption, possibly on the first £100,000 they make, from the sale of their business.

The Treasury is said to still be working out the level, but government sources have told The Daily Telegraph the threshold would run into ‘tens of thousands’ and could be close to a £100,000 limit. Under the old retirement relief fund, which was phased out when new CGT levels were introduced by Labour in 1998, the first £250,000 of a capital gain was tax free, but anything after that was taxed at 40%.


SG comment: I am sensing this whole thing has been such a bad start for Darling as Chancellor, with such a major revolt from UK business. I am wondering how much opinion he actually surveyed from small/medium sized business before these proposals, or perhaps he can't do that, which would be strange? I am also very comforted that UK business can have a major influence on government decisions, which is a relief.