On 12 November 2020 HMRC published a consultation document concerning Making Tax Digital (MTD) for corporation tax (CT). The closing date for comments from interested parties is 5 March 2021.

Under MTD for CT all entities within the charge to corporation tax would be required to keep digital records; use compatible software to provide quarterly summaries of income and expenditure; and send in an annual corporation tax return using the software.

A voluntary pilot scheme for MTD for CT would be launched in April 2024, and the scheme would become compulsory from 2026 at the earliest.

Scope and application

All entities within the charge to corporation tax would be within the scope of MTD and there would not be a minimum turnover threshold. Those entities large enough to make quarterly corporation tax payments under the existing legislation would be required to comply with the digital record keeping requirements; but would not be required to send in quarterly MTD reports.

Business records

The minimum data needed for each transaction would be date, amount and category of the transaction. For small businesses there is likely to be some alignment with the data required for MTD for income tax. The consultation document puts forward a list of minimum categories for which information would be needed.

The document also considers how the rules could apply to groups of companies. The rules will need to be aligned with financial reporting standards and Companies House filing requirements. There is also consideration of digital record keeping for non-financial data.

Quarterly updates

Entities would provide quarterly updates to HMRC and the consultation document considers how this information could be used, especially in the case of the largest entities, groups and multinational enterprises. The paper proposes that accounting and tax adjustments should be optional for the quarterly updates.

Software

The document looks at how entities will use software to provide the information, accounts, statements and reports they need to complete as part of the requirement to file a corporate tax return. It may be possible to align the filing dates for tax and company law.

Exemptions or Alternative Procedures

For certain types of entity such as charities that fall within the charge to corporation tax it could be appropriate to introduce exemptions or alternative MTD processes.

Costs

The consultation document notes that many entities within the charge to CT will incur costs owing to the need to change processes to meet the new obligations. This would apply in particular to smaller entities that are not subject to current quarterly filing requirements or those which currently filing online through the government’s Company Accounts and Tax Online (CATO) scheme. The costs will vary from entity to entity according to the size and complexity of the entity, its specific obligations, digital capability and the cost of the software employed. Entities with a turnover below the VAT threshold are most likely to require significant time and costs to achieve MTD compliance. HMRC will consult with stakeholders in the accountancy and software professions and with taxpayers and their representatives to adapt processes, minimise costs and provide effective support during the transition.