Policy paper

Statement of Practice 15 (1993)

Published 19 June 1993

1. HM Revenue and Customs (HMRC) are prepared to accept computations of business profits for tax purposes in figures rounded to the nearest £1,000 from single businesses or companies with an annual turnover of not less than £5 million, where rounding at least to that extent has been used in preparing their accounts. (The turnover of members of a group will not be aggregated for applying this £5 million threshold.) Where turnover fluctuates either side of the threshold, rounding can be used for a period of account if the turnover for either that year or the immediately previous year is above the limit. (Turnover comprises gross receipts including investment and estate income, as well as trading receipts.)

2. HMRC will only accept rounding in any particular case if the basis adopted is satisfactory. Rounded computations from such businesses must be accompanied by a certificate made by the person preparing the computations which:

• states the basis on which the rounding has been done
• confirms that this basis is unbiased, that it has been applied consistently and that it has been used in a manner which, in all the circumstances, produces a fair result for tax purposes
• if the rounding was done by computer, states the program or software used

In subsequent years if there have been no changes in the basis or in the software, the certificate need only confirm that the rounding has been done on the same basis as before.

3. HMRC are prepared to accept rounded figures only in relation to the computation of the profits of the business, including in the case of companies, non-Case I items. They cannot accept rounded figures in relation to the computation of tax payable or of any other figure of tax.

4. Nor can they accept rounded figures, in relation to any other aspect of the tax computations, where rounding would impede the proper application of the relevant legislation or where it would normally be necessary to go back to the underlying records to do the computation, and thus there would be no reduction in the compliance burden in allowing the use of round sums. Rounding is not therefore acceptable in:

• computations of chargeable gains (since precise dates on which expenditure is incurred are needed for indexation allowance purposes); rounding can however be accepted in relation to the incidental costs of acquisition and disposal
• computations of tax credit relief: while individual items of foreign income (including profits of overseas branches and, for the purpose of calculating underlying tax rates, dividends paid by overseas companies and the profits of those companies) may be rounded, computations of credit relief must continue to distinguish the individual items of income and to show the exact amounts of foreign tax for which credit is claimed so that the rules for limiting the credit can be properly applied
• computations required for purposes of the Accrued Income Scheme (TA 1988 ss 710–728)
• aspects of capital allowances computations where precise figures are required, for example by the statute or where rounding might work unfairly because more than one taxpayer is involved and different bases could be used by each. One case where the statute requires the use of precise figures is the expensive car provisions in CAA 1990 ss 34–36 [see now CAA 2001, Pt 2, Ch 8]. However in any capital allowances apportionment case it would be open to the taxpayer to demonstrate to the Inspector that, taking all the circumstances into account, including those of any other party, the use of rounded figures did not lead to a result that was materially different from the statutory position. For example, in the case of the industrial builders one-quarter rule (CAA 1990 s 18(7); [CAA 2001 s 283]), the Inspector would want to be satisfied that the use of rounding alone did not reduce the non-qualifying expenditure to one-quarter or less of the total expenditure (and thereby enable the whole of the expenditure to attract allowances)
• the application of the statutory amount in TA 1988 s 748(i)(d) in relation to a controlled foreign company

5. Exceptionally other circumstances may arise where rounding would not satisfy the tests in paragraph 4. In those circumstances the Inspector may insist that roundings are not used.

6. These arrangements will continue into Pay and File. Subject to the exceptions provided in the 2 previous paragraphs, rounded figures from the accounts may be used in the computation of trading profits and losses, each category of income, management expenses and charges. Where appropriate, these figures will of course require adjustment to the ‘received’ or ‘paid’ basis. Group relief or relief for losses from other periods should be on the actual sums surrendered or brought forward (or carried back). No rounding should take place in the return form itself (for example, in the allocation of profits to financial years) or in any arithmetic that precedes such entries (for example, a computation of marginal small companies relief).

7. Where arrangements on the use of rounding have already been agreed locally with Inspectors these may continue to operate in the short term, but must come to an end for all periods ending after 31 May 1995.