GB/HMRC

GNUCash and UK businesses

In the UK the body responsible for tax collection is HM Revenue and Customs (HMRC).

VAT

Value-added tax (VAT) is the tax payable on goods and services. VAT is charged at 20% on purchase of goods and service, but the VAT paid can be reclaimed by business if they are VAT registered on the standard scheme. Businesses collect the VAT on goods and services supplied and then pay this to HMRC periodically (usually every 3 months). A standard VAT registration allows a business to claim VAT refunds on VAT paid, while charging VAT on goods and services at 20%.

Other VAT schemes are available, which are used to simplify accounting which vary the rules above e.g. one scheme allows a business to charge VAT at 20% but pay HMRC only 18%, keeping the difference in return for not reclaiming VAT paid. See https://www.gov.uk/vat-registration.

Small businesses need register for VAT only if the turnover is above a certain value (currently £85000). A business may remain unregistered for VAT if operating below this value, or may choose to register in order to reclaim the VAT or gain other benefits of the VAT system.

Business with a turnover above £85000 are required to submit VAT returns using the HMRC Making Tax Digital API (MTD). Legislation requires that the VAT returns are calculated from ("linked to") account records directly. Thus, they cannot just be manually created in a spreadsheet.

Corporation tax

Corporation tax is the tax payable on business profits. The tax rate is currently 19% due to rise over the next few years. The calculation is complex: businesses can deduce some expenses from gross profits in order to calculate a net profit and compute the profit on that. Businesses have the option of moving profits and losses between reporting years. For any reasonably-sized business, an accountant is likely needed.

Annual filing

Every business is required to submit annual financial records to Companies House and HMRC. Companies House receives annual accounts which record the health of a business and permit oversight which are published publicly. HMRC receives account records and a tax statement which allows assessment of the business for corporation tax. The information is also used for regulatory compliance.

When a business is registered, an annual filing period end date is selected marking the end of the period a business should report on. One quirk of the system is that the first reporting period is usually set at just over 12 months (1 year plus the period of the remaining month in which the business was created). A second rule is that a corporation tax statement must not be longer than 12 months. The result is that businesses need to file two corporation tax statements in the first year, one for the full year, and one for the remaining part of a month.

In previous times, businesses would file corporation tax statements using the CT600 paper form or electronic equivalent. CT600 is now used in exceptional circumstances.

The level of reporting in the Companies House accounts filing depends on the nature of a business. Very small businesses ("micro-entities") are required to submit only a highly summarised balance sheet, and will likely not be required to undergo an independent audit. For the largest businesses, the report will include a director's report and an auditor's report along with detailed financial accounts.

Businesses are largely required to forego paper filing and use electronic interfaces. In most cases, Companies House require accounts to be published in iXBRL format using an XBRL taxonomy published by the Financial Reporting Council (FRC) which is the body that regulates financial reporting in the UK and the Republic of Ireland.

HMRC require:

• standard company accounts (iXBRL using an FRC taxonomy)
• a corporation tax statement (iXBRL using an HMRC corporation tax taxonomy)
• a detailed profit-and-loss statement (iXBRL using an HMRC detailed profit-and-loss taxonomy)

While small businesses can submit abridged accounts to Companies House, full accounts are required by HMRC. Thus, two sets of accounts may need to be produced, this appears to be a grey area.

For smaller businesses with simpler affairs, the HMRC's online web filing service can be used to create the filings to HMRC and Companies House from account information entered by the business administrator, without the need to create reports or create iXBRL. Larger businesses will typically have accountants prepare and submit the filing.