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 deduct 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 made available publicly on the internet. HMRC receives account records and a tax statement which allows assessment of the business for corporation tax. This information is not made available publicly, but is used for 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 a company's first reporting period is usually set at just over 12 months (1 year plus the remaining part of the month in which the business was registered). 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 only 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)

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 iXBRL reports. Larger businesses will typically have accountants prepare and submit the filing.

Accounting with GNUCash

Keeping accounts for company accounts and corporation tax filing is possible. HMRC's web tool can be used to submit accounts and corporation tax filing for eligible businesses. Accountants can be used to manage the filing for other businesses. You may need an accountant to help understand what to record, and how to present the information for compilation of accounts.

VAT accounting is less straightforward:

• For a business which is not required to register for VAT and maintains less than £85,000 turnover, there is no VAT returns to file.
• For a business which is VAT-registered but has turnover less than £85,000, there is presently no need to use the Making Tax Digital (MTD) APIs, and HMRC's web interface can be used to submit VAT returns, although the MTD requirement is going to be exteneded.
• For businesses required to use the MTD API, there is a requirement that the VAT return is derived from GNUCash accounts electronically. See https://www.gov.uk/vat-record-keeping/making-tax-digital-for-vat. One interpretation of the rules is that it is not permitted to keep VAT records in GNUCash and manually submit the VAT return using a spreadsheet.

MTD APIs

In order to get access to the MTD API, developers are required to register a developer account with HMRC and get their application approved before production credentials are issued. Production credentials may not be shared (e.g. included in an open-source project).

Third-party tools

GnuCash does not support the VAT MTD API, nor the corporation tax API, although there are third-party projects which support the filing protocols. These tools are not supported, nor endorsed by GNUCash developers.

• gnucash-uk-vat allows a VAT return to be submitted derived from GnuCash accounts. As an open-source project there are issues around sharing the application secrets which HMRC have made available for the project. This project has been used successfully to file VAT returns. See https://github.com/cybermaggedon/gnucash-uk-vat.
• gnucash-ixbrl allows iXBRL reports to be created from GnuCash accounts. It is taxonomy-neutral, but comes with some sample configuration files to produce UK account filing, and a combined corporation tax statement / detailed profit-and-loss account. See https://github.com/cybermaggedon/gnucash-ixbrl.
• gnucash-uk-corptax interacts with the corporation tax API to submit the corporation tax filing consisting of company accounts plus corporation tax statement using iXBRL payloads. This project has no interaction with GnuCash at all, but has only been tested with the output of gnucash-ixbrl. This takes care of the HMRC filing requirement, a business would still need to file accounts to take an iXBRL account statement and file to Companies House using web filing. See https://github.com/cybermaggedon/gnucash-uk-corptax.