Tax accounting and reporting

All businesses require efficient tax accounting processes to facilitate tax reporting, ensure compliance with 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 cashflow.
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The tax accounting calculation is usually prepared at the end of the financial statement cycle. This leaves businesses little time to provide final tax numbers before the audit is signed off. Given the pressure to report under shorter timeframes and increased scrutiny and compliance requirements large businesses face on their tax positions, robust and comprehensive tax accounting and reporting procedures are essential. For larger businesses, the tax reporting process will form part of their overall Senior Accounting Officer (SAO) processes.

Tax accounting can be complex, particularly as tax rules do not always align with the accounting treatment. Businesses face a variety of common challenges:

  • Relying 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
  • Lacking integration between tax and finance systems
  • Depending on spreadsheets or outdated tax accounting systems

How we can help

Our tax specialists support businesses with their tax accounting and reporting while adding value by recommending process improvements and mitigating risks. Given the actual and perceived audit independence threats for larger businesses, companies increasingly request our support with their tax provisions. We provide this for their existing auditor to review.

We can support your business:

  • 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
  • Advising on tax disclosures in the financial statements
  • Reviewing existing tax accounting and reporting processes and recommending areas for 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
  • Providing qualified members of our team on a secondment basis to help you manage tax processes

Frequently asked questions about tax accounting and reporting

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 tax law provisions.

Deferred tax is a key element of tax accounting and can be complex. It is an accounting concept that aims 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, where depreciation charges often appear in financial statements, but for tax purposes 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, which 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

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 accounts six months after the company’s year-end. Private companies must file their accounts nine months after the company’s year-end. This deadline differs from the deadline for submitting a 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.

The extent to which your auditor can provide non-audit services will depend on the size of your business.

For larger businesses, audit independence rules could impact the extent to which non-audit services, including tax accounting and secondments, can be provided by your auditor. Larger businesses increasingly 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 best practice.

For smaller businesses, it is usually acceptable for the auditor to also 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.