Inland Revenue intends to work with software providers as they build a tax capability within their products. This will ensure that businesses and their advisors can have a sense of confidence and certainty. Inland Revenue will develop the specifications required from a software program before it can be offered to the marketplace, and will be able to audit any software.
The specifications may include the following;
- meet minimum prescribed accounting requirements;
- offer accrual accounting and tax adjustments;
- file electronically to Inland Revenue;
- accurately map the information prescribed in the IR10 style form;
- calculate cumulative year to date profit figures on a regular basis;
- support users to take reasonable care in entering and coding activities for income tax purposes;
- calculate a reasonable tax liability (using a prescribed set of tax adjustments);
- have the capacity to provide online notification to Inland Revenue that a business will be paying through AIM;
- must provide a tax calculation that meets IR specifications;
- support the relationship between tax advisors and their clients through shared communication, alerts and dual access; and
- agree to continue to upgrade and maintain software as per any changes to Inland Revenue specifications, and changes in law.
The calculation of provisional tax payments isn’t additional work for taxpayers as the software does the actual calculation. However, there may be additional work to input and code data on a more regular basis depending on your current work practices. The software will pull relevant accounts into the tax calculation, so taxpayers will need to code their income and expenses to the right accounts (i.e. profit and loss or balance sheet accounts). The software will use up-to-date figures where they are available, and a mix of prior year figures and current year estimates where this is not the case. For example, where expenses are traditionally steady the software could use last year’s amount as an estimate in current year.
As the amounts paid are on a cumulative basis, any corrections to prior provisional tax periods can be reflected by the software in the current payment. Therefore a tax advisor can make adjustments retrospectively and the software will reflect this for the current period, and remember it for next time (for example, if a percentage of an expense relates to private non-deductible use, then the software will apportion it and remember it for next time).
We are considering suggesting notifications for accounts with more complex tax implications, and notification/alert messaging between tax advisors and clients to support these relationships.
Ensuring that we keep accounting software programs intuitive and simple to use whilst adding in an income tax component will be a balancing act for software providers and Inland Revenue to work through.
We expect to work with software providers in an iterative way. Inland Revenue and software providers will regularly assess how the software is working, any issues users are experiencing, and on-going refinements to improve accuracy and ease of use, and to comply with any new income tax requirements.
We would expect that those who offer software to the market would do so with care and responsibility.