Traditionally tax adjustments are only identified and calculated at year end. However, most of the information required is available at the time it is entered into software and doesn’t need to wait until year end.
Tax adjustments could be treated in four different ways under AIM. These are listed from most accurate to least accurate;
- Use up-to-date figures as per the software;
- Estimate based on previous years’ figures;
- Accept slippage from one payment period into the next payment period; and
- Adjust only at year end.
Software will be designed to help businesses and their advisors choose the correct treatment. For example, an alert could trigger saying “please check with your advisor” or “last year you coded this as…” For particularly complex accounts a tax agent might be prompted to review the treatment chosen by a business. Where an advisor corrects an entry, the software will remember and suggest it in the following year when the business enters the same data.
As an example if a business incurs a series of legal costs, some of which are deductible while others are not. If this was an area that the business owner felt unsure of their coding choices they might set up a rule that when an expense is coded to this account, a notification is automatically sent to the advisor for their review and the business owner is able to provide some notes to the advisor.
Inland Revenue will ensure there are common treatments for tax adjustments built into software to provide confidence in the accuracy of provisional tax calculations.
We are interested in ensuring there is an agreed way of treating these adjustments for tax purposes. This commonality will improve certainty and accuracy of the calculations. It will also remove any benefit or disadvantage to taxpayers depending on what brand of software is used.
Some of the most common tax adjustments that businesses make during the year are detailed below. We are interested to receive your feedback on each of these adjustments. How do you think these could be treated in your software? What can we do to make these adjustments simpler for you during the year?