The start of Making Tax Digital for corporation tax may not be until April 2026, but Anita Monteith urges action now that the consultation period is under way.
We now have three taxes running along the Making Tax Digital (MTD) development track in tandem: VAT, income tax for self assessment, and corporation tax (CT). The consultation document published on 12 November 2020 explains the design in some detail. In addition to comments on this, it also asks for feedback on costs and benefits for different sizes and types of company. We anticipate that Tax Faculty members may have strong views.
A simplified version of the consultation document will be published in the coming months to encourage those working with smaller companies to share their views.
Digital record keeping
Companies are already required to keep accounting records, but MTD for CT will require them to keep a digital record of the date, amount and category of each transaction, and to use digital links for the flow and transfer of data. The consultation includes a set of minimum categories to be used by smaller companies, like those required for income tax under MTD. Members’ views on this list would be appreciated.
Perhaps having seen so much controversy over the actual cost to business of implementing MTD for VAT, HMRC is keen to understand the additional cost (one-off or ongoing) of imposing this requirement for CT. There are cost questions on other areas of digital record keeping too, such as maintaining digital records of non-financial data, including:
- type of company;
- standard industry classification; and
- property addresses.
ICAEW’s Tax Faculty would also be interested in the additional costs your practice or business anticipates, as well as an understanding of how this differs from the current iXBRL requirements for tagging non-financial data.
Quarterly updates
Quarterly updates will be compiled and filed digitally within one month of each quarter end. Although most periodic returns are likely to be based on the transactions to date, accounting and tax adjustments may also be made by software on a quarterly basis.
For groups, there are questions around whether group submissions by a nominated company might be welcome. Standardising claims and elections through software is also examined. Feedback on this would be helpful.
In addition to the broad principles of making returns above, there are many more issues to be explored, including:
- dormant company reporting;
- reporting for different business segments; and
- country-by-country reporting.
Getting ready
Although 2026 seems many years in the future, the intention is to start a voluntary pilot in April 2024. One thing we have learned from digitalisation of tax to date is that participating in a pilot is time consuming but worthwhile. Having your hand held early on reaps rewards in the long run.
We urge members to read the consultation and start thinking about this sooner rather than later. Send your comments for consideration for inclusion in the ICAEW response to anita.monteith@icaew.com before 15 February 2021. The closing date for submitting responses to HMRC is 5 March 2021.
Overview of requirements
Companies will maintain their digital records in line with VAT requirements, with summaries uploaded quarterly using software.
The expected CT liability will be displayed as the year progresses.
At the year end, the company’s accountant or agent will make accounting adjustments before filing the accounts with Companies House and the tax return with HMRC using MTD software.
The iXBRL tags will be added automatically by the software. It will be interesting to know how our members currently comply with iXBRL tagging requirements nearly 10 years on from their introduction. Is this done automatically using software, is it outsourced or is it still done by hand?
The CT population is currently 2.8 million. Of these, 1.1 million have turnover above the VAT threshold, so they will already be within scope of the MTD for VAT rules.
The MTD for CT rules will be modified for the largest companies with profits exceeding £20m that are already making CT payments through the quarterly instalment payments regime.
MTD will apply to all entities within the charge to CT, including clubs, non-resident companies and non-exempt public bodies.
The consultation makes several references to the work of the Office of Tax Simplification on possible simplifications to the CT computation to align taxable and accounting profits more closely.
The free Company Accounts and Tax Online software product used by 8% of companies may be discontinued. HMRC anticipates that commercial software will fill this space.
There is also a suggestion that the MTD for CT and Companies House filing deadlines might be aligned.
About the author
Anita Monteith is Technical Lead and Senior Policy Adviser at the Tax Faculty