Making Tax Digital (MTD) is a significant initiative by the UK Government that is aimed at transforming the tax system to make it more efficient, effective, and (in theory) easier for taxpayers to get their tax right. Initially announced way back in December 2015 it had an ambitious goal of fully digitising VAT, Income Tax Self Assessment (ITSA) and Corporation Tax (CT) by 2020.
The broad aims of the plans were that for most businesses, self-employed people and landlords they would be required to keep track of their tax affairs wholly digitally and update and pay their taxes to HMRC least quarterly via their ‘digital tax account’ with a final reconciling year-end return (if needed!).
At the time of the announcement, as a tax advisor having spent a significant portion of my time working in CT compliance I recall the thoughts of “well that’s my career over in 5 years, time to pivot to a different area of tax, as the robots(*) are going to replace me”
In hindsight the timeline targets looked optimistic at best and far-fetched at worst. To briefly recap where the overall MTD project is at the current time of writing:
After the initial pilot for VAT was opened in 2018, MTD for VAT was fully implemented from April 2022. After a number of false starts and postponements (with the pilot program re-opening in April last year) MTD of ITSA is currently on course to be implemented from April 2026 for self-employed businesses and landlords with turnover above £50,000, with that turnover threshold falling to £30,000 from April 2027 and £20,000 from either April 2029 or 2030.
So as someone who has worked in the CT compliance ‘coal-face’ for the better part of 25 years what of MTD for CT? Well given likely the similarities of the approach to the switch to quarterly reporting of MTD for ITSA, this author suspects that HMRC are very likely adopting a ‘wait and see’ approach to how MTD for ITSA eventually lands with taxpayers before pressing the button to relaunch a timetable for its introduction to the CT world. Indeed the last official statement on MTD for CT was following HMRC responses to the initial consultation on MTD for CT in 2021, when HMRC simply stated that “MTD for corporation tax will not be mandated before April 2026”. Since then, silence.
Whilst more than 3 years old the broad themes of that consultation are still all relevant. There was/is general support for MTD for CT, but consultant responders unsurprisingly had concerns about costs and complexity of such a system and therefore needed early clarity and assurance on design and timings. Interestingly the consultation touched on digitising of some aspect of the CT regime independent of MTD being made mandatory; including claims and elections, submission of CT61 returns, Group Payment Arrangement closure notices and Simplified Group Relief Arrangement submissions, but disappointingly these forms remain in ‘analogue mode’ for now.
Some insights into how MTD of CT may work can possibly be gauged from the current MTD for ITSA framework as it continues to evolve prior to April 2026. In January 2025 HMRC published the “Making Tax Digital for Income Tax: digital record-keeping notice”. The notice included details of the Quarterly ‘update information’ that must be provided by taxpayers with this information to be submitted by the 7th of the month following the end of the relevant quarter. The link to full categories for each retail businesses and self-employed and property businesses is here. Currently, the list of expense categories ranges from 9-13 depending on the type of business with the expenses for Non-property businesses as follows:
- Cost of goods bought for resale or goods used.
- Construction industry: payments to subcontractors.
- Wages, salaries and other staff costs.
- Car, van and travel expenses.
- Rent, rates, power and insurance costs.
- Repairs and renewals of property and equipment.
- Phone, fax, stationery and other office costs.
- Business entertaining costs.
- Interest on bank and other loans.
- Bank, credit card and other financial charges.
- Accountancy, legal and other professional fees.
- Other business expenses.
Whilst the above would hopefully capture the vast majority of expenditure in in the P&L of a CT return it remains to be seen how such small list would interact with the existing more substantial iXBRL taxonomy detailed P&L tags of a CT return. It would seem unlikely that HMRC would want to reduce the existing level of ‘tagged’ P&L analysis that is currently mandated in the annual CT returns, but it was clear from the consultation that having to implement tagging at say transactional level for larger businesses would be extremely challenging. How that quarterly tagged data would then be expanded upon and reconciled into the level of P&L tagging currently provided to HMRC in current annual CT returns is certainly one for them to ruminate on as MTD of CT eventually evolves.
As with MTD for ITSA the intention is that with MTD for CT companies will need to use MTD-compliant software to calculate and submit their normal end of year corporation tax return in addition to the quarterly submissions. Given that with MTD for ITSA it does not appear that any tax adjustments are required to be made to the quarterly information, if the same approach is taken with MTD for CT this author can see minimal cost savings over the current annual compliance process with MTD for CT, as broadly the same level of work to getting from the accounting profit or loss of a company to the taxable profit or loss will end up being undertaken in that final return following on from the quarterly submission (rather than the minimal effort/“the end of the tax return” originally envisaged in the original 2015 plans).
HMRC also previously indicated in the 2021 consultation that through MTD for CT the filing date of tax returns could potentially be aligned with that for the statutory accounts. This would mean that private companies would only have nine months to file their corporation tax return (six months for a listed company). Respondents to the consultation were largely sceptical of such a proposal being workable and this author agrees that unless the quarterly submission can substantially reduce the extent of the work in arriving at tax adjusted profits within the end of year process it would be difficult for the tax compliance deadlines to be aligned more closely with the statutory accounts. We will wait and see….
So, as the UK continues to embrace digital transformation, MTD will continue to play a large role in shaping the future of tax administration. Ultimately, MTD for CT will happen eventually, of that there is no doubt, and the grand plans for both MTD for ITSA and CT to drive efficiencies for both HMRC and taxpayers to streamline tax administration and modernised our tax system should be lauded as a goal, regardless of the elongated timescales to get there. However, continued careful planning and consideration on the part of HMRC is going to be needed for a smooth and successful implement of both MTD for IITSA and MTD for CT in the years to come.
*AI wasn’t really a thing in 2015 kids
