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Following further announcements this year by HMRC in respect to Making Tax Digital (MTD) for VAT and Income Tax, HMRC have also launched a public consultation to apply MTD for Corporation Tax.

The public consultation is set to last for 16 weeks across 12 November 2020 to 5 March 2021 and is the first step to refining the initial proposals, with the plan to initiate a pilot scheme before a final mandated roll-out. Currently HMRC have proposed a start date for a voluntary pilot from April 2024, with mandating to follow from April 2026 at the earliest.

HMRC state nearly three million businesses and other taxpayers are within the charge to corporation tax, of which around half incur a tax liability every year.

The Proposals

The consultation document helps to outline what HMRC believe will be the requirements of the MTD for Corporation Tax system. If adopted in their current form, all entities (unless specifically exempted) within the charge to corporation tax would need to;

1. Maintain records of income and expenditure transactions digitally

As it stands, HMRC will not define ‘transaction’ but will instead rely on the commonly understood meaning to include any income earned and expenditure incurred.

For each transaction, a minimum of ‘Date’, ‘Amount’ and ‘Category’ will be required and a minimum level of categorisation will be needed.

2. Use compatible software to provide quarterly summary updates of their income and expenditure to HMRC

HMRC estimate that of the 2.8 million entities to submit a corporation tax return in 2018/19, approximately 1.1 million will already be mandated to follow rules under MTD for VAT so will be maintaining the required transactional data in suitable software already.

Similar to previous taxes, HMRC are not proposing to release any ‘free’ software themselves, instead relying on the software market to fill demand, potentially including some free options.

3. Provide an annual corporation tax return using their compatible software

In a similar stance to the MTD for Income Tax proposals, accounting periods would be split into four quarterly reporting periods co-terminus with the relevant year end. (Thus, a financial year ending 31 December would have periods ending 31 March, 30 June, 30 September and 31 December). 

At the end of each accounting period, a final fifth submission would be made, acting as a confirmation of the data previously submitted plus inclusion of any accounting or tax adjustments and specific elections, unless submitted through the quarterly updates.

Exclusions and Other Notes

The proposals confirm that where businesses have been exempted from other MTD taxes, it will also be exempt for corporation tax with the reasons for exemption continuing to be very limited in scope.

Trading subsidiaries of charities are set to be included and further consultation is being sought in regards to group structures, with a potential ‘elected’ members of groups potentially submitting group data.

It is also indicated that as with other taxes, ‘digital links’ will be expected where separate accounting systems exist and that manual entry or intervention in the data transfer will not be permitted.

HMRC have also confirmed that they are discussing the potential amendment of the current corporation tax return filing deadline (currently 12 months from year end date) to align with the tax payment and Companies House filing deadlines (9 months from year end).

Whilst the consultation is still at an early stage and some of the details above may change, it is important that businesses stay aware of any potential changes for the future. Thomas Westcott will continue to provide updates on developments through our blogs but should you have any questions please get in touch with your usual Thomas Westcott office.

For further advice on this matter, please do not hesitate to contact me or your local Thomas Westcott office.