Making Tax Digital (“MTD”) – Corporation Tax

On 12 November 2020, HMRC published a consultation concerning the introduction of MTD in relation to Corporation Tax.

For those of you who wish to read the consultation document and even go so far as to take part in the consultation, the link is noted below.

Making Tax Digital for Corporation Tax

For those of you who would be more content with a summary, I have taken the liberty to look over the document and offer a commentary below;

1. The core aim is to oblige companies to submit quarterly summaries / updates of their tax position to HMRC through dedicated software

2. HMRC argue this will be helpful to the Treasury in terms of real time economic matters but also will help ensure taxpayers are “paying the right tax closer to the right time”

3. It will become fully operable from April 2026

4. Tax Agents will be able to be authorised by a company to submit quarterly summaries / updates on behalf of their clients

5. The submission of returns by software will become compulsory

6. Updates may be “centralised” and the responsibility of a “nominated company” on behalf of a group of companies

7. Quarterly summaries / updates may incorporate anticipated claims for reliefs, allowances etc; if so HMRC would prefer to have these features standardised within the relevant software and not one off or irregular as at present

8. Summaries / updates will be posted under MTD one month after a quarter end of the accounting year

9. Companies who are already within the quarterly CT tax regime (QIP’s) would sit outside the MTD obligations as they are already interfacing with HMRC (by making quarterly installment payments)

10. Finally, HMRC has questioned whether the due date for filing Corporation Tax returns should be aligned with company accounting filing deadlines (9 months after the year end instead of 12 months after the year end)

 

Comment

Technology makes administrative matters much more orderly and precise and therefore these proposals make considerable sense without imposing too much of a burden upon the taxpayer companies.

The only concern to be aware of is that once quarterly summaries / updates become embedded into a well-oiled system of tax compliance, the easy and next step will be to advance payment of tax within the quarterly regime as applies to large companies under the QIP’s regime.

We can understand the need to make VAT and PAYE subject to real time processes; in the former, the tax belongs to HMRc with the taxpayer company merely an agent collector and in the latter the tax is money withheld from employees where the company has a duty to pass on the employee’s payment.

Corporation Tax is a tax on profits and so whilst MTD will simplify the data collection and compliance duty, it is to be hoped that tax payments will not be accelerated for small and medium sized enterprises as the very essence of their business, cash management, will be significantly altered.

If you need any further details please contact us at chris.cummings@ase-global.com.

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