HMRC outlined its proposals for the introduction of Making Tax Digital (MTD) for corporation tax (CT) on 12 November 2020 and invited all entities within the charge for CT as well as agents, professional bodies and software developers to respond by 5 March 2021.
As providers of both MTD and corporation tax software, we wanted to share our views from a technical perspective on how the proposed changes would impact the process. We believe that as the provider of choice for CT filings for 70% of large corporates and advisory firms in the UK, we had a unique insight to feed back to HMRC. We welcome the opportunity to help shape this exciting piece of legislation.
Key strategic messages we chose to convey were:
- Overall, we believe that these measures from HMRC are a significant step in the right direction for the digitisation of the tax regime in the UK. However, we believe HMRC have been too generous in terms of timescales with measures not becoming mandatory before 2026. We recommend accelerating the timescale to 2023 on the basis that this would give taxpayers more than enough time to prepare and, as a technology vendor in this market, we believe that the technology exists now to deliver what HMRC require – why wait 5 years especially given the momentum with VAT?
- We do not believe that the use of the proposed list of categories for data collection (detailed in section 3.15) would be the best option. We believe that the XBRL Detailed Profit & Loss (“DPL”) has been in place for most businesses since 2014 and could form a much better basis for a minimum requirement. This would drive consistency across the market and create a much more valuable dataset for HMRC.
- We believe that MTD for CT represents a great opportunity for HMRC to standardise the approach for incentives, allowances and reliefs. If a universally digital approach is adopted, HMRC would create a rich dataset that would inform future policy decisions around how to best target these measures going forward. In a post-COVID world, more detailed information about these items would better enable HMRC to aid recovery through the tax system. In addition, such systemisation would make it easier for HMRC to warn taxpayers earlier in the submission process around possible errors and reduce the volume of errors in returns, which in turn would help to reduce the tax gap.
- Whilst we agree with the contention that larger taxpayers are lower risk, we do not believe that using the VL QIPs scheme is the correct criteria for having businesses fall in or out of scope of MTD for CT. The VL QIPs scheme does not cover large loss-making businesses and the way in which companies fall in/out of scope of VL QIPs could mean businesses moving in/out of MTD for CT on a frequent basis. We believe that this requirement could be significantly simpler; exclude businesses with a customer compliance manager (CCM). This would achieve the same desired result whilst not introducing practical difficulties in the process.
- Whilst not mentioned explicitly in the consultation, we believe that the extension of certain Tax Risk measures, such as the Business Risk Review (“BRR”) and Senior Accounting Officer (“SAO”), to a wider population of organisations, would be beneficial. We have seen these measures focus on systems and processes, and help to ensure that organisations get the best out of digital investments. For example, reducing the turnover threshold for SAO from £200m to £50m would be an impactful measure to ensure that once MTD for CT is in place, that businesses and HMRC realise the full value of the mandate.
- For small and medium sized businesses, we would recommend HMRC help organisations fund digital tax technology in year 1 to accelerate adoption. We believe that this would pay off significantly for HMRC in the medium-term and enable a much quicker and stronger adoption of digital technology for CT.
To see our response to all 22 of the questions posed by HMRC, you can read the document we submitted in full here. Or, to find out more about our corporation tax solution – Alphatax – please contact us at email@example.com or call us on 01784 777 700.