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The conundrum of the detailed profit and loss account
Do you need to submit a detailed profit and
loss account with a corporation tax return?
There is no requirement in the Companies Act or
accounting standards, directly or indirectly, to include a detailed profit and
loss account with a company’s annual accounts.
There is no specific HMRC requirement to include a detailed profit and loss
account with a corporation tax return. The term detailed profit and loss
account is not defined in law. There is no prescribed format and no
prescribed level of detail. This is made clear on HMRC's web site at
www.hmrc.gov.uk/manuals/ctmanual/CTM93180.htm
There is requirement to include with a corporation tax return details of how
numbers in the tax computation are calculated from the annual accounts (see
www.hmrc.gov.uk/manuals/ctmanual/CTM93210.htm).
However, a detailed profit and loss account
virtually never serves this purpose. For instance, it is simply not possible to
calculate the amount of entertaining expenses from a company’s annual accounts.
The information is not there, just the total of administration expenses.
HMRC’s computers will not reject a corporation tax return because it does not
contain a detailed profit and loss account. However, some tax offices have in
the past rejected returns after submission because they did not contain a detailed profit and loss account.
In June 2011 HMRC informed VT that the consensus within HMRC was that a
corporation tax return should not be rejected solely on the basis that it did
not contain a detailed profit and loss account, and that steps were being taken
to communicate this to the wider HMRC. However, HMRC emphasised that they
very much wanted a detailed profit and loss account to be included with a
corporation tax return.
If a detailed profit and loss is submitted,
should it be in iXBRL or pdf format?
The strict rules say that the annual accounts and computations must be
submitted in iXBRL format and that everything else must be submitted as a pdf
(see paragraph 6i at
www.hmrc.gov.uk/ebu/mandatory-online-filing.pdf).
Strictly speaking, the detailed profit and loss account should therefore be
submitted as a pdf. However, it is clear from the HMRC web site and direct
discussions that VT have had with HMRC that HMRC would like the detailed profit
and loss account to be in iXBRL format. To do otherwise runs a risk of a
corporation tax return being (falsely) rejected after submission.
Should the detailed profit and loss account be
included in the annual accounts iXBRL file or the tax computation iXBRL file?
Either is acceptable to HMRC although they have a preference for the latter. In
VT's experience, small and medium sized companies tend to include the detailed profit and loss
account as an attachment to the annual accounts.
Does the detailed profit and loss account need
to be tagged?
Any information provided in an iXBRL file falls to be tagged regardless
of whether there is a mandatory requirement to provide the information or not.
For instance, if you voluntarily provide a company information sheet then it
must be tagged. However, the tags for the detailed profit and loss account have
been entirely removed from the minimum tagging versions of the accounts
taxonomies and hence the detailed profit and loss account does not need to be
tagged. VT Software have confirmed this point directly with
HMRC. Untagged information in an iXBRL file can still be seen - it is just not
tagged.
In contrast, the minimum tagging version of the corporation tax taxonomy does include tags for the detailed profit and loss account. Hence, if the detailed profit and loss account is included in the tax computation iXBRL file it must be tagged. This does not apply to VT, as the VT templates include the detailed profit and loss account in the accounts iXBRL file.
The advice about tagging the detailed profit and loss account given at www.hmrc.gov.uk/ct/ct-online/file-return/online-xbrltag.pdf is incomplete and therefore misleading. VT have requested that HMRC expand upon it.
Summary
It is not surprising that the detailed profit and loss account is causing
confusion:
HMRC do not have a legal right to require a detailed profit and loss account as part of the corporation tax return but clearly expect one
HMRC should not reject a return that does not include a detailed profit and loss account but they have been known to do so
Strictly the detailed profit and loss account should be included in pdf format but HMRC actually want it in iXBRL format
The requirement to tag data in an iXBRL file does not depend on whether the data has been voluntarily provided, but some commentators have stated the contrary
The detailed profit and loss account can be included as part of the accounts iXBRL file or the tax computation iXBRL file. Most companies do the former, but HMRC have expressed a preference for the latter
Under the minimum tagging rules, the detailed profit and loss account must be tagged if it is included in the tax computation iXBRL file but not if it is included in the accounts iXBRL file
The advice at www.hmrc.gov.uk/ct/ct-online/file-return/online-xbrltag.pdf concerning the detailed profit and loss account is incomplete and therefore misleading
Recommendation
VT recommend that a detailed profit and loss account be included untagged in the
accounts iXBRL file. By default, VT Final Accounts includes an untagged detailed
profit and loss account. VT have confirmed with HMRC that this is acceptable.