Requiring companies to report quarterly as part of Making Tax Digital for corporation tax offers little benefit to HMRC and will impose a significant burden on businesses, ICAEW’s Tax Faculty has warned.
In its response, to HMRC’s consultation on expanding the Making Tax Digital (MTD) regime to corporation tax (CT), ICAEW urges HMRC to reconsider quarterly reporting requirements, at the very least for businesses below the VAT registration threshold and organisations that require a senior accounting officer.
Published as ICAEW Rep 29/21, the faculty’s response argues that quarterly reports would merely consist of cash in and out transactions. It states: “These reports will tell HMRC very little about the true accounting or tax results of the company for the quarter concerned.”
It suggests that depending on the business size, complexity and processes, making quarterly reports that are a more accurate reflection of the business’s tax results could take significantly longer than the month the government currently proposes for submission of reports.
The Tax Faculty concludes: “The additional burden placed on companies in providing quarterly reports is not justified and should not be introduced until digital record keeping has become established and the software available is shown to work efficiently for companies and HMRC.”
Similarly, it argues that the digitisation of records should only be mandated at a general ledger level for all companies, not the transaction level. The faculty believes this would meet HMRC’s aims of encouraging records to be kept in a digital format, while reducing the administrative burden on businesses.
While the faculty reiterates its support for digital transformation of the tax system, it urges the government to consult closely with businesses and software developers to ensure there is the variety of software available to meet the differing needs of businesses and that packages work “seamlessly” with existing record keeping processes.
It also suggests that MTD for CT is an opportunity to make interaction with HMRC easier and simpler for companies and their agents. A company tax account portal is one potential option, but the faculty also highlights that HMRC could share how it might make best use of the information to which it already has access.
While acknowledging the accuracy benefits of digitalising records, ICAEW highlights that they will come at “material cost” to business. It suggests that new equipment, staff training and ongoing additional labour costs are also likely, alongside software costs.
The response also urges for flexibility in allowing firms to choose whether to report at the group level and outlines which organisations ICAEW believes should be exempt from MTD for CT.
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.