UK Corporation Tax – Forthcoming Mandatory Online Filing Requirement

December 31, 2009 by  Filed under: Taxes 

UK Corporation Tax is constantly evolving and a number of key changes are set to modernise the manner in which the tax compliance process for companies is conducted. A company which is resident in the UK is liable to UK Corporation Tax on its worldwide profits wherever these profits arise and whether or not these profits are repatriated to the United Kingdom.

If a company is not resident in the UK it is only chargeable to corporation tax if it carries on a trade through a branch or an agency. Generally, in this situation, a company will only be liable to tax on the profits of that branch or agency. Note that distributions from the profits of a UK company do not form part of the profits in this context.

Companies are responsible for self-assessing their UK Corporation Tax liability and submitting a Corporation Tax Return together with supporting documentation (including a tax computation and complete financial statements). Most companies pay their corporation tax liabilities for a particular accounting period by the deadline of nine months and one day from the end of the relevant accounting period. Large companies however have to pay tax in quarterly instalments.

A major forthcoming change for the UK Corporation Tax compliance process is that all company tax returns must be filed online from 1 April 2011 for any accounting period ending after 31 March 2010.

The computation and accounts supporting the corporation tax return must be filed in a format known as iXBRL (Inline Extensible Business Reporting Language). As a result of using this format, HMRC will be able to electronically analyse company tax returns. Note that although company disclosures will be electronically readable in the future, this does not affect how the document appears to the human eye – humans will be able to read and use these documents in the usual manner.

In outline, company disclosures will be tagged with iXBRL tags from a pre-defined taxonomy. What this means for companies is that they need to start considering now how the tags will be built into their corporate disclosures. Companies will have several choices to make regarding how to implement the requirements of iXBRL. For example companies will have to consider whether they wish to use software that allows iXBRL tags to be applied to their disclosures in the course of their preparation or whether they wish to go down the route of using bolt-on iXBRL tagging where the tags are applied after the disclosures have been completed.

Although these forthcoming changes may seem some time off it could take some time for companies to consider and devise an implementation strategy to become compliant in time.

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