Taking a look at Making Tax Digital for Corporation Tax

26 Jan 2021

On 12 November 2020, HMRC launched the first consultation on Making Tax Digital for Corporation Tax (MTD for CT). Open for comments until 5 March 2021, a key headline is that the government are not looking to mandate MTD for CT prior to 2026. This is the start of a journey but one that all corporates and their tax agents will be interested in monitoring.

Following the announcements made in relation to VAT and income tax back in July 2020, this latest consultation seeks feedback to inform the early-stage design of MTD for CT and get a better understanding of the transitional and ongoing costs and benefits for companies of different sizes.

If the principles and design proposed in the consultation are adopted, entities within the charge to CT would need to:

  • maintain their transaction records digitally
  • use MTD-compatible software to provide regular summary updates of their income and expenditure to HMRC
  • provide an annual CT return using their MTD-compatible software.

Key to the above is the need to provide regular summary updates as this exceeds the current annual filing requirement of corporation tax returns. While the nature of regular updating remains subject to consultation, the following should be noted:

  • The preferred proposal is for quarterly updates, with a reporting deadline of one month after the quarter end.
  • The government is suggesting that accounting and tax adjustments would be optional in the regular updates.
  • Claims and elections would likely remain linked with year-end reporting, although there would be the option to include the indicative effect of anticipated claims to incentives, allowances and reliefs in the regular updates.
  • For groups, it may be possible for a nominated company to maintain digital records on behalf of other entities within the group and to file regular updates on behalf of all group companies.
  • Very large companies (with profits in excess of £20 million, as shared between the number of related 51% group companies) that pay their tax in quarterly instalments would likely be exempt from regular reporting on the basis that HMRC already knows what it needs to know about the tax affairs of these entities.

The consultation asks for opinions on a range of other matters including scope (charities, community amateur sports clubs (CASCs) and not for profit organisations) and digitally excluded customers. It is well worth a read and feeding back to HMRC while at this stage.

After the consultation has closed, the government will continue to refine the MTD for CT requirements by working collaboratively with stakeholders and will then provide entities with an opportunity to take part in a pilot. The proposed date to commence the voluntary pilot for MTD for CT is April 2024, with mandation to follow from 2026 'at the earliest'.

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