The UK government laid out its plans for Making Tax Digital for Corporation Tax towards the end of last year. If you’re a tax payer who pays Corporation Tax then you’re eligible to have your say and you’ve got until 5 March 2021 to make your views known.
We’d really urge you to take part. Why? Because there are some real issues that need to be hammered out within these 22 proposals and if supporting statements and objections are made early enough then it will ensure a smoother progress for us all.
Key sticking points that may affect you include:
- Falling in and out of regime – The qualification criteria for the Very Large QIP regime mean a company may come into scope for MTD for CT only to then qualify again for Very Large QIP the following quarter. Conversely, what will happen to those multi-national companies that make a loss and are not part of the QIPs regime? It is not yet clear how HMRC will deal with these scenarios.
- Digital records – Corporation tax uses a combination of the statutory accounts and Trial Balance information as its starting point – not the digital records/transactions used for VAT. This means new digital processes will have to be put in place to support these quarterly updates and the annual return.
Within the consultation, 28 categories of income/expenditure have been proposed, which will see businesses required to digitalise processes to ensure the relevant information is held in an electronic format. The list of categories doesn’t fully tally with the existing Detailed Profit and Loss (DPL) list used for tagging so there is liable to be some realignment required.
- Digital links – The manual intervention involved in the creation of a corporation tax return today could be replaced by digitally linked processes. We could also see a structural change in how businesses report because the consultation proposes using a nominated entity to fulfil all of the obligations and both quarterly and annual reporting on behalf of the group/s. If this were to happen and one entity takes responsibility for fulfilment, this could see the need for further automation and digital linking to other entity records.
- Quarterly reporting – This is likely to prove disruptive initially and will increase the administrative workload. We could see a sixfold increase in workload (four quarterly updates, one annual ‘true up’ and one annual submission). Moreover, there will be increased pressure to routinely monitor the process which will be no small undertaking due to significantly more touch points.
- Optional reporting – Incentives, allowances and reliefs, as well as adjustments and elections, can be included or omitted in the quarterly reporting. But how would this work in practice? If the business were to make an annual election during a quarterly filing, for instance, it would need to be removed from the usual annual return and/or ‘trued up’. How amendments will be performed also remains at the business’ discretion, with corrections performed either at the same time as the next filing for that period or in the Annual Return, but this could lead to inconsistencies.
- Annual reporting – while this will largely remain the same, some new information will be required ie group structure and the SAO, for instance. The submission deadline may also be shortened from twelve months to nine, aligning it with the statutory accounts timetable. While it is envisaged this could help reduce the administrative burden for those businesses required to submit information in respect to other company taxes and laws, it could also see a clash with statutory accounts as access to the same subset of data would be required for both at the same time. This is likely to force businesses to use statutory accounts production packages rather than post-production tagging packages that we see used today. Or we could see MTD compatible software required to accommodate this need.
These are just the issues we have come across that made us sit up and take note, but there may well be others within the proposals that catch your attention.
If you’d like to explore how the proposals relate to your specific sector, HMRC is running a number of virtual events over Microsoft Teams throughout January and February, the full list of which can be found here. To attend, you simply need to email email@example.com outlining the event you’d like to attend, following which you will be sent log-in or call-in details.
There are a number of ways you can respond to the consultation itself.
If you’re a small business, you can complete a questionnaire on each of the proposals by clicking here. They and anyone else can also respond to the questions either via email to firstname.lastname@example.org or via post to HMRC, S1715 6th Floor, Making Tax Digital for Business Policy and Design Team, Central Mail Unit, Newcastle upon Tyne, NE98 1ZZ. When you do, make sure you state you are a business as they wish to differentiate between industry bodies, agents and businesses.