Tax accounting and reporting
All businesses require efficient tax accounting processes to help facilitate tax reporting, ensure compliance with the relevant accounting standards and align with the group’s tax strategy. Tax accounting and reporting processes are vital throughout an accounting cycle to allow businesses to plan for tax liabilities and manage cash flow.
The tax accounting calculation is usually prepared at the end of the financial statement cycle, leaving businesses with little time to provide final tax numbers before the audit is signed off. Given the pressure to report under shorter timeframes and the increased scrutiny and compliance requirements large businesses are facing on their tax positions, it is vital that businesses have robust and comprehensive tax accounting and reporting procedures in place. For larger businesses, the tax reporting process will form part of their overall Senior Accounting Officer (“SAO”) processes – see here for further detail on the SAO regime.
Tax accounting can be complex; particularly, as tax rules do not always align with the accounting treatment. Typically, the key tax accounting areas of focus include:
These are complex areas. Some common challenges we see around tax accounting and reporting for our clients are:
- reliance on non-tax personnel to respond to tax queries and apply the appropriate tax treatment;
- keeping up-to-date with changes in accounting standards and tax regulations;
- understanding the drivers behind the effective tax rate;
- preparing tax provision and reporting calculations on a timely basis owing to other conflicting deadlines and priorities;
- lack of integration between tax and finance systems; and
- overreliance on spreadsheets or the use of outdated tax accounting systems.
How we can help
Our team of tax specialists support a range of businesses with their tax accounting and reporting, while adding value by recommending areas of opportunity in your processes and mitigating areas of risk. Given the actual and perceived audit independence threats for larger businesses, increasing numbers of companies are requesting support with their tax provisions, which we provide for their existing auditor to review.
We can support your business by:
- preparing or reviewing quarterly, interim and annual tax provision calculations;
- validating tax balance sheet accounts;
- advising on the tax impact of new accounting standards under the International Financial Reporting Standards (IFRS) and UK GAAP (generally accepted accounting principles)
- advising on tax disclosures in the financial statements;
- reviewing existing tax accounting and reporting processes and recommending areas of improvement to ensure efficiency and accuracy;
- providing bespoke and subject-specific training on key tax accounting concepts;
- providing technological solutions to improve the integration of data and processes;
- designing and implementing robust technological solutions with analytical capabilities to replace outdated tax accounting systems and/or manual spreadsheets; and
- providing qualified members of our team on a secondment basis to help you manage tax processes.
Frequently asked questions
How is tax accounted for?
The way tax is accounted for will depend on the accounting standard under which the business prepares its financial statements. In the UK, this will be either UK GAAP or (IFRS). Generally, EU-listed groups must prepare their consolidated financial statements using IFRS. The accounting standard adopted will also influence the disclosure made in the financial statements.
In general, the tax treatment follows the accounting treatment unless there are specific overriding provisions in tax law.
What is deferred tax?
Deferred tax is a key element of tax accounting and can be a complex area. It is an accounting concept. Its aim is to recognise the impact of the timing difference between the accounting and taxation treatment of items in the financial statements.
Examples of timing differences that give rise to deferred tax include:
- Deprecation and capital allowances: depreciation charges often appear in financial statements. For tax purposes, however, depreciation is often disallowed and capital allowances, a form of tax depreciation, are claimed instead. There is usually a mismatch in the amount of accounting depreciation compared to tax depreciation each year.
- Employer pension contributions: these are accounted for on an accruals basis but are only allowable for corporation tax purposes on a paid basis. If there are amounts due but unpaid at year end, a deferred tax asset will arise.
What are the deadlines for tax reporting?
The deadlines for reporting the tax numbers in the financial statements are aligned with the overall statutory financial reporting process. The corresponding deadline for filing the annual statutory accounts therefore depends on whether the business is a public or a private company. Public companies must file their statutory accounts6 months after the company’s year-end. Private companies must file their accounts nine months after the company’s year-end. This deadline is different from the deadline for submitting a business’ corporation tax return to HMRC, which is usually 12 months after the end of the accounting period.
Some businesses also report interim results part-way through the year, which require tax estimates to be calculated.
What tax accounting services can our auditor provide?
The extent to which your auditor can provide non-audit services will depend on the size of your business.
For larger businesses, there have been some recent changes to audit standards that could impact the extent to which non-audit services, including tax accounting and secondments, can be provided by your auditor. For more information on these restrictions see here.
We are increasingly finding that larger businesses choose to have a separate audit and non-audit service provider, even where no restriction exists, owing to perceived independence concerns and what many boards now consider to be ‘best practice’.
For smaller businesses, it is usually acceptable for the auditor also to provide tax accounting services. Our tax teams work closely with our audit colleagues to provide a seamless, comprehensive service for clients where there are no independence conflicts.