There is less than a year to go before e-filing using
iXBRL becomes compulsory in the UK. Phill Robinson, managing
director of IRIS Accountancy Practice Solutions, says every
accountancy practice in the UK will be affected and questions
whether they are ready for the sweeping changes headed their
way.

 

All UK corporation tax computations and
accounts will have to be filed online with HM Revenue and Customs
(HMRC) using the new iXBRL (inline eXtensible Business Reporting
Language) data exchange format from 1 April 2011.

This deadline seems a long way away for many
accounting practices. Straw poll surveys show a surprisingly high
number of practices do not know much about HMRC’s iXBRL
implementation plans and even less about how it might impact their
business.

This lack of concern is not surprising as many
practices, struggling to weather the difficult economic period,
have little time to look ahead at legislation that still seems over
the horizon. After all, there is little clear business benefit from
spending significant time understanding the change.

A good number who do know about iXBRL are
taking a ‘wait and see’ approach, thinking they can make the leap
at the last moment. Some are assuming, without solid evidence, that
their software provider will automatically be compliant by the
deadline. All of these scenarios carry risks.

 

Understanding the issues

The other main issue is the general lack
of information available about the transition.

iXBRL is a hybrid or close cousin of XBRL,
which emerged many years ago as a global IT data standard designed
to facilitate the reporting of business information. One key use of
XBRL is to define and exchange financial information.

XBRL’s suitability for financial statements
links directly to one of HMRC’s overriding goals – to achieve a
universal electronic delivery of business tax returns.

While significant changes have already occurred
in the pay-as-you-earn (PAYE) and VAT area, iXBRL will allow HMRC
to meet its corporation tax obligations.

Unlike XBRL, iXBRL retains the formatting of
the documents being submitted. The result is that each submission
has a human-readable form, which remains unchanged, but also
includes computer-readable XBRL data.

The benefit to HMRC and Companies House is that
information can be taken directly from the XBRL file and, without
human intervention, stored directly in the database and systems of
these institutions. This is clearly a more efficient way of
processing a large volume of data, plus it means every return is
stored in the same way, ensuring more accurate analysis of returns
and better identification of irregularities.

To achieve this, key elements of the tax
computation and the accounts documents must be annotated, or
‘tagged’, within the document. It is the iXBRL tag that tells the
computer what each piece of information is and what to do with it.
There are more than 9,000 individual data elements that require
analysis, a subset of which require tagging to satisfy the
requirements of HMRC and its systems. Most of this work needs to be
done by software providers as their software must be
iXBRL-compliant to tag the information that accountants place in
their returns. 

If this sounds complicated, it is. Some have
compared the deadline for iXBRL to the Y2K or Millennium Bug, which
threatened to bring the civilised world to its knees in 2000. This
may seem excessive, but there are some striking similarities
between iXBRL and Y2K, unique to the accountancy sector.

 

Software provider
responsibility

Most UK practices rely heavily on their
software provider to collectively file more than a million company
tax returns each year. If their software provider fails to offer a
proven iXBRL-compliant solution by the deadline then affected
practices will be unable to file their clients’ returns. Even with
HMRC suggesting a degree of leniency after the transition, the
likelihood is that incorrect filings will be rejected and will have
to be re-submitted.

In the case of the Y2K concern, software
providers invested heavily to reduce the potential impact of the
bug. This is an investment being mirrored by many, but not all, of
the software providers affected by iXBRL today. It remains unclear
what the extent of the problem will be. Even software providers who
are ahead of the game need to educate their customers on
prospective hurdles the transition to iXBRL will inevitably, and
unexpectedly, throw up.

Another factor holding back some practices is
the knowledge that the only real beneficiary of iXBRL is HMRC – for
everyone else it simply represents extra work, time and cost. While
they may have a point, the transition is unavoidable and the longer
practices resist complying simply increases the risk to their
business.

For those with a positive outlook, iXBRL could
represent a new business opportunity for accountants and tax
advisers since many clients will rely on their accountant for
expert advice on the move to iXBRL. It is an opportunity for
practices to ask prospective clients whether their existing
accountant can guarantee they can produce iXBRL-compliant
returns.

Some smaller businesses and bookkeepers may
have been cost-constrained and not used professional accountancy
software, instead opting for submitting returns in Microsoft Word.
They will need to migrate to application software that supports
iXBRL, as this is not currently a Word capability.

 

The real burden

Whatever your opinion or outlook on
iXBRL, the real burden falls on the shoulders of the software
vendors who are required to create products that, with minimal
impact to the user, are fully compliant with the new iXBRL
standard.

To understand the extent of this burden you
need only consider the introduction of the Companies Act 2006. With
1,300 sections and 16 schedules, it was the single largest bill
ever put before Parliament and required a significant development
effort by software providers. Massive investment was required to
deliver the required functionality by the deadline so practitioners
could continue operating as usual.

It is the same with iXBRL. Most of the
accountancy packages available today will need significant
development to ensure they meet the new standard. 

Users are faced with many, often conflicting,
messages from providers. Potential for confusion around iXBRL
remains, and it is up to individual practices to ask big questions
of their providers and ensure they have a plan in place that makes
the transition as simple and non-disruptive as possible.