The government consulted on Making Tax Digital for Corporation Tax in the first quarter of 2021. Rollout is some way off, but what should you be doing now?

Consultation

The government’s consultation on Making Tax Digital for Corporation Tax (MTDfCT) closed on 5 March 2021. While responses are no longer being taken, it is still essential reading.

Key points

In summary, the key things that will need to be done once MTDfCT is up and running are:

  • specified records must be kept digitally
  • compatible software must be used
  • quarterly income and expenditure reports must be filed with HMRC during the accounting period; and
  • finalised figures including year-end adjustments will be submitted after the end of the accounting period.

The finalised accounts will be the starting point for the corporation tax (CT) return, which will need to be submitted using MTDfCT compliant software.

Timeframe and early preparation

The rollout is some way off, with April 2026 being the earliest envisaged start date. There will be a voluntary pilot, as there currently is for income tax – probably available from April 2024.

There’s no de minimis limit proposed. Businesses with turnover below the £85,000 VAT registration threshold could find the transition especially challenging. Work out which clients fit this profile so you can prioritise them as required. They may need to update systems or change software.

Pro advice. Action now will ease the transition and making key software choices early on should avoid disruption.

Further detail

The document sets out broad brush strokes, and fine-tuning is expected before the rollout.

Quarterly filing. This brings a new reporting obligation, adding to your clients’ (and your) workload. The consultation doesn’t require quarterly accounting and tax adjustments, e.g. for prepayments and accruals, but your client can choose to include them. This may be worthwhile if it makes a material difference to the CT liability as it will help with budgeting. There is a separate consultation on whether interim tax payments should be based on quarterly submissions.

Pro advice. HMRC will show the expected CT liability as the year goes on, but this is unlikely to be meaningful.

The consultation excludes very large companies (over £20 million profits), which are already within the quarterly instalment payments regime, from quarterly reporting. But these businesses will still need digital records and links.

Claims. It’s expected that the method for claims for reliefs, allowances and incentives will remain the same, i.e. made via the CT return.

Pro advice. However, there will be an option to include the indicative effect of anticipated claims in the quarterly update. Again, this may be useful for more accurate budgeting, but will of course mean more work.

Pro advice. Changes to record keeping, reporting and procedures take time and training. Consider if you will need bookkeeping services in addition to your accountancy services to help you comply.

Digital records. For income and expenditure, the minimum requirement will be to record the date, amount and category of the transaction digitally.

There are numerous reporting categories suggested, largely based on MTD for Income Tax self-assessment. Bolted on are others like income and gains from non-trading loan relationships, dividends, participator loans, directors’ benefits and director loan balances.

Pro advice. Review compliance in key areas like dividend payments and close company participator loans to get clients off to a good start.

Digital records for MTDfCT may also serve as prime records for Companies House reporting. To comply with MTDfCT, accounting and tax adjustments relating to the period have to take place in MTD-compliant software or linked software.

Annual return. This remains but will be submitted through MTD software.

It will include data in the main FormCT600 and supplementary pages, plus iXBRL tagged accounts and computations. The consultation doesn’t currently envisage transactional level tagging.

Filing dates. The government is looking at MTDfCT as a way to align filing dates for tax and company law purposes, by bringing forward the date to file the company tax return. There has also been a consultation on bringing forward the filing date for company accounts.

Non-financial data

You are probably getting used to the idea of digital links, so that information flows seamlessly, within a digital environment from initial data entry, right through to submission to HMRC. Here, that will be via the MTDfCT application programming interface.

What’s new with MTDfCT is that some non-financial data will have to be held digitally as part of the MTD-compatible software. The basic information is the type of company, standard industry classification, details of property addresses, details of the senior accounting officer and a breakdown of the group structure identifying all group members within the charge to CT.

This information may already be held in digital format, but it’s less likely to be held within MTD-compatible software. This means that existing software would need to be digitally linked to MTD-compatible software, so submission of information to HMRC can be seamless, or alternative software will be required.

Differences with MTD for VAT

Companies who are already using MTD for VAT (MTDfVAT) may assume that they are prepared for MTDfCT. However, the basic information needed for the two regimes is slightly different. For VAT, the minimum to be recorded for expenses is time of supply (tax point), value of supply, and amount of input tax claimed. But MTDfCT requires transaction dates, amounts and categories.

Pro advice. Start exploring whether software and processes designed for MTDfVAT will also work for MTDfCT. Have the conversation now and find out what software suppliers will have on offer.

A key issue is data and report extraction. MTDfCT is based on UK GAAP accruals accounting and quarterly reporting. MTDfVAT can be based on cash accounting, or invoice accounting within a monthly or quarterly cycle. MTDfCT also proposes mandatory reporting categories for smaller businesses (as above).

Will your existing software enable reports to be extracted from the same data on different bases, and submissions made on different cycles? If a client business has bespoke software, for example a holiday park using software that features booking functionality, and uses bridging software for VAT reporting, it may need new software to produce reports for MTDfCT.

Start getting ready for Making Tax Digital for Corporation Tax now to ensure a smooth transition. Review existing software to ensure it will allow them to produce the necessary reports. If not, you may need to change supplier.

The next step

Consultation document: MTD: CT

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.