Making Tax Digital for Corporation Tax
On 30 November 2021 HMRC published a response to their earlier consultation on the potential design of Making Tax Digital (MTD) for Corporation Tax. The consultation considered a number of areas, including the scope of MTD for Corporation Tax, digital record keeping, filing updates, establishing the final corporation tax liability and special cases and exemptions.
The consultation response states that the Government is committed to ongoing collaboration with stakeholders to help shape a service design that works for all and will provide sufficient notice ahead of implementation following any decision to mandate MTD for Corporation Tax, to allow businesses time to prepare.
HMRC Timeline for MTD for Corporation Tax
HMRC have stated that MTD for Corporation Tax will not be mandated before April 2026.
The MTD for Corporation Tax consultation suggests that a pilot of the service could be launched in 2024.
At this stage we believe both these dates are unlikely to be met.
What is MTD for Corporation Tax?
Under the requirements of MTD for Corporation Tax, companies will need to:
- maintain digital records of their income and expenditure;
- provide quarterly updates of income and expenditure to HMRC using MTD compatible software; and
- file their annual corporation tax return using MTD compatible software.
One area explored in the MTD for Corporation Tax consultation is whether there is scope to align the corporation tax return filing deadline with that for the statutory accounts. This would mean that private companies would only have nine months to file their corporation tax return (six months for a listed company). The consultation response indicates that, whilst there are no plans to change legislation to require all companies to file their company tax returns with HMRC at the same time as they file their statutory accounts with Companies House, the introduction of MTD for Corporation Tax could bring an opportunity to revisit and simplify existing processes.
Scope of MTD for Corporation Tax
The MTD for corporation tax consultation proposes that MTD will apply to all entities within the charge to corporation tax, with only a few minor exceptions.
Unlike MTD for ITSA there is no exemption proposed for smaller businesses. Instead, the only true exemptions proposed are for the digitally excluded (i.e. those for whom it's not 'reasonably practicable' to use digital tools to keep records and file updates) and insolvent entities which would normally be exempt from online filing.
However, it is proposed that the requirements could be relaxed or flexed for companies in certain circumstances. In particular, those companies that fall in the quarterly instalment payments regime for very large companies (i.e. with profits in excess of £20m) may not be required to submit quarterly reports, though they will still be required to keep digital records in the required format and submit their annual return using MTD compatible software.