On the 30th of November 2021, HMRC published the summary of responses to the Making Tax Digital (MTD) for Corporation Tax (CT) consultation that ran from 12th November 2020 to 5th March 2021.
Being one of the 142 respondents and the provider of choice for over 70% of large corporates and advisory firms in the UK, we are well placed to draw on our 30 years of experience and provide valuable insight.
As providers of both MTD and CT software, we are extremely supportive of the Government’s vision for a fully digital tax system; and as the creators of Alphatax, the product used for over 200,000 CT returns annually to HMRC, we are acutely aware how the proposed changes could impact the process.
We welcomed the opportunity to help shape this important legislation and were keen to read the Government’s responses to the feedback received in the consultation.
Here is a summary of what stood out to us the most:
1) HMRC have acknowledged the requirement for “certainty, clarity and assurance” for taxpayers and admit that there is considerable work to do in several areas – referencing multiple times their continued desire to work with stakeholders on specific design decisions. What this feels like is that HMRC remain 100% committed to the overall digitisation of taxes and the MTD program but have also realised that there is significantly more work to be done before they get to a proposal that will work for the industry.
2) Quarterly filings remain firmly in scope. One of the cornerstones of MTD for CT is that information about company performance will be with HMRC much earlier; in some cases up to 20 months earlier than at present. Given the drivers to increase transparency, this is a step-change and one that HMRC doesn’t look to be backing down from.
3) One of the more controversial proposals from HMRC was to align the statutory accounts and CT return deadlines; effectively moving the CT deadline 3 months sooner. As we expected, the industry view was that this simply isn’t possible given the use of statutory accounts in the CT process. It appears HMRC have relented on this proposal, though suggested a shorter period for small entities. Our view on this is that whilst we do believe technology can significantly improve processes here, it’s not generally in use yet. Perhaps this is something for MTD for CT wave 2?
Overall, we believe that this update from HMRC was useful and gives us a useful steer on some of the key topics. Unlike other MTD consultations from HMRC that have seen a considerable “watering down” between consultation and practical application, we haven’t seen significant movement on the key topics, apart from the proposed change to filing deadlines. Hopefully we will now see HMRC move to clarify some more key areas of the design and then move towards practical application in the timeframes they set out at the start.
In addition to the key points, here is a summary of some other specific areas covered in the update from HMRC:
Under MTD for VAT, the largest challenge for many businesses, particularly those with any level of complexity in their process has been the “digital links” part of the process. What is clear from the update is that HMRC expects the digital link aspect to be replicated in CT as it has been implemented in VAT; indeed, they explicitly mention that multiple software systems can be used to meet the requirements.
That is likely to mean that businesses can use a system of record (ERP system) for their accounting transactions, use intermediary working schedules (typically, Excel) and then push these results into the MTD for CT-compliant software. However, for many businesses at present, at least part of that process is manual. Therefore, CT processes will need to be updated in-line with VAT processes to ensure that they are digitally linked from source to report.
Minimum categorization & XBRL
Throughout HMRC’s response, they would tend to give a summary of responses and then give a “Government response” – in this instance, no government response was given.
However, what was encouraging (and proposed in both our original response to the consultation as well as ICAEW’s) is the recognition that aligning to the iXBRL Detailed Profit & Loss (DPL) would be advantageous.
Should this be the direction of travel taken by HMRC, it would provide a common language used in filings to HMRC and make the dataset HMRC have at their disposal consistent and powerful – something which we believe should be at the cornerstone of any digitisation strategy from HMRC.
Digitisation of certain forms
Part of the consultation covered the digitisation of certain forms that are currently submitted “offline”. There was broad support for the digitisation of these forms, which is encouraging to see. HMRC were equally positive on this topic and are looking to exploring a range of alternatives to the currently process – which makes sense given the manual nature of current state.
HMRC note that further work will be done in this area, and we look forward to consulting with them when it comes to the detailed design on this process
Timeframe for submissions
One of the cornerstone proposals in the original MTD for CT consultation was a suggestion to align the annual CT submission date with the stat account deadline, i.e., to 9 months rather than the current 12-month requirement. Unsurprisingly, this specific proposal received a significant volume of feedback as to how this would not be feasible.
HMRC’s response to this feedback was a measured one – reiterating a desire to reduce the timescale required to get the data. However, it feels that HMRC have noted how significant this change would be for businesses and therefore we feel it is unlikely that this would feature in the final requirements.
The consultation also touched on the topic of XBRL. Whilst XBRL submissions of stat accounts has been required by UK businesses for over a decade, it is widely thought that the quality of some submissions is not where it should be. This is, at least in part, because there are no punishments for businesses that do not provide high quality iXBRL tagging.
Frustratingly, many of the consultation respondents did not agree with the view that penalties should be charged for poor quality tagging. It was encouraging to see that HMRC remain committed to improving the overall quality of submissions, which of course will benefit them in terms of having a better-quality dataset to target enquiries. However, from the consultation alone it does not appear we will see a step-change in the iXBRL requirements in the UK.
In a separate question around transaction-level tagging of data, HMRC accepted that this would be a costly exercise. However, HMRC are at least mindful of a future state where transactional level details are available to them – speaking to a future state of real-time tax data.
To find out more about our corporation tax solution – Alphatax – please contact us at firstname.lastname@example.org or call us on 01784 777 700.