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HMRC internal manual

Business Income Manual

Tax and accountancy: materiality: relevance for tax

Materiality is an accounting concept. It is not a tax concept

The accounting concept of materiality is used in preparing accounts which are the starting point for ascertaining the taxable profit or loss.

Some relaxation of the requirement for full accuracy has been made for computing taxable profits.


Rounding to £1,000

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 the accounts. This treatment is explained in Statement of Practice 15/93, which clearly shows that this is ‘concessionary’ treatment and is designed to minimise compliance burdens. It is to operate ‘fairly as a whole’ which means that rounding up and down applies and that no rounding is possible in situations when the records would have to have been accessed anyway (as then there is no compliance saving).


SA returns

In the completion of SA returns, pence are not included; income and gains are rounded down to the nearest pound and tax credits and deductions rounded up.


Use of estimates and judgement

Some entries in accounts depend on the estimates and judgment made by the preparers of the accounts and will lie within a range of values. The requirement that information should be free from deliberate or systematic error should prevent materiality judgments being skewed in a particular direction. But ultimately the factual accuracy of any item in accounts is a matter for the Tribunal to decide.