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MTD for corporation tax in HMRC's sights from 2026

12 November 2020: HMRC has published the long-awaited consultation on Making Tax Digital for corporation tax (MTD for CT), confirming its plans for rolling out MTD. Meanwhile, consultation on more timely payment and the tax administration framework has been delayed to Spring 2021.

HMRC has sent a strong signal that it plans to proceed with the rollout of MTD by publishing a consultation on MTD for corporation tax. The first third of the document is devoted to HMRC making the case for the wider MTD project and the timetable for rollout, before getting into the detail of the design issues for MTD for CT.

The basic elements of the proposed design are set out as follows:

  • all entities within the charge to CT would need to maintain their records digitally (for example records of income and expenditure) ; and
  • use MTD compatible software to provide quarterly summary updates of their income and expenditure to HMRC (some exceptions will be allowed); and
  • submit an annual CT return using their MTD compatible software.

HMRC proposes commencing the voluntary pilot for MTD for CT in April 2024, with mandation to follow from 2026 at the earliest.

The 22 questions in the consultation are grouped as follows:

  • Chapter 2 considers the scope and application of MTD for CT having regard to the range of entities that are within the charge to CT. The expectation is that all entities within the charge to CT would be in scope, with no minimum turnover threshold. Entities which are large enough to be making quarterly corporation tax payments under the current rules, will have to meet digital record keeping requirements, but would not also need to make quarterly MTD reports.
  • Chapter 3 explores what business records could be kept and maintained digitally. The suggestion is that the minimum data set required for each transaction would be date, amount and category, which already raises questions about the alignment with MTD for VAT. The expectation is that, for smaller businesses there would be some parity with the categorisation required for MTD for income tax and suggests a list of minimum categories for which information would be required. Other questions consider how the rules might apply to groups. Clearly there will need to be careful alignment with financial reporting standards and Companies House filing requirements. There is also a paragraph covering digital record keeping for non-financial data.
  • Chapter 4 sets out how entities could provide information to HMRC through quarterly updatesand how this information will be used. It specifically considers how updates might work for the largest entities, groups and multi-nationals. In the context of MTD quarterly updates, it proposes that accounting and tax adjustments should be optional.
  • Chapter 5 describes how entities will use software to provide the equivalent information, accounts, statements and reports currently required as part of their obligation to file a company tax return. It considers the possibility of aligning the filing dates for tax and company law. It also considers the interaction of MTD with iXBRL tagging. Most controversial may be the expressed intention to, over time, withdraw HMRC’s free Company Accounts and Tax Online (CATO) software with no commitment to a free commercial software product alternative.
  • Chapter 6 examines whether alternative MTD processes or exemptions may be appropriate for some entities, such as charities, falling within the charge to CT.
  • Chapter 7 seeks views on the vexed question of costs.

ICAEW’s Tax Faculty is now considering the best way to gather the views of members to inform both informal discussions with HMRC and the formal representation, the deadline for which is 5 March 2021. Any immediate comments for us to consider when drafting the ICAEW response to this consultation should be sent to anita.monteith@icaew.com.