With the publication of a long-anticipated consultation document earlier this month, HMRC has shown keenness to press on with the rollout of its Making Tax Digital (MTD) scheme.
In this latest update, it was proposed that a new stage of the scheme, MTD for corporation tax, could be introduced from 2026 at the earliest, with a pilot launched in 2024.
The full details of the scheme’s design haven’t been released yet – that’s what the consultation aims to decide – but it could apply to anyone who falls within the charge to corporation tax.
That includes all UK-based companies, as well as non-resident companies and some public bodies.
If you’re in that group, here’s what you need to know.
Under the proposed rules, all entities within the charge to corporation tax would need to meet the requirements of MTD. These include:
- maintaining digital records
- using MTD-compatible software to provide quarterly updates of their income and expenditure to HMRC
- submitting an annual corporation tax return using MTD-compatible software.
HMRC said there will be some entities that won’t need to provide the quarterly updates, however.
The MTD timeline
The first mandatory stage of the scheme was MTD for VAT, which applied to most VAT-registered businesses with a taxable turnover above £85,000 from 1 April 2019.
The next part of the scheme will see the same rules extended to all VAT-registered businesses, including those with a turnover under £85,000, from April 2022.
MTD for income tax, meanwhile, has been piloted since April 2017, but it’s set to be made mandatory for self-employed people with business and property income over £10,000 a year from April 2023.
Is MTD worth the cost?
According to HMRC, the aim of MTD is to improve and modernise the tax system, making it easier for people to pay the right tax and crack down on those who are cheating the system.
Collecting real-time data should also give HMRC greater flexibility and access to up-to-date information on businesses in the UK.
This is something that has been highlighted by the COVID-19 pandemic, and the difficulty of creating financial support schemes based on limited data.
Extending MTD to corporation tax is another part of those wider plans to digitise the tax system, but its actual impacts have been disputed.
The Association of Taxation Technicians (ATT) and Chartered Institute of Taxation (CIOT) have urged the Government to take a cautious approach to introducing more corporation tax obligations, warning that the benefits may not outweigh the costs for some taxpayers.
Tina Riches, chair of the ATT and CIOT’s joint digitalisation and agent services committee, said both organisations were “pleased” to see the change won’t be rolled out before 2026, and that HMRC are not “rushing to implement first and examine later”.
“We are disappointed the consultation presupposes that most entities within the charge to corporation tax should be within the scope of MTD, before the costs and benefits arising to different parts of the population have been established,” Riches added.
“If a key purpose of MTD is to encourage taxpayers to become digital then it is not necessary to extend it to corporation tax, as a large proportion of companies are VAT-registered and so already in MTD for VAT, or using digital records anyway.”
Research conducted by the CIOT and ATT earlier this year cast some doubt on whether MTD is currently achieving its goals, with almost 90% of people saying they didn’t think MTD for VAT had reduced errors.
HMRC argues in its consultation document that moving to MTD could “act as a catalyst for wider digital integration”, improving business processes and the economy as a whole.
The Government’s own review of MTD, published as part of Budget 2020 in March, said businesses had reported that “by integrating ‘doing tax’ into day-to-day record keeping, they spent less time overall dealing with their tax affairs”.
HMRC added that to ensure effective support is available for organisations which find it harder to put MTD-compliant systems in place, it will “work with stakeholders in the accountancy and software professions as well as businesses and their representatives”.
Talk to us about meeting your MTD obligations.