Making Tax Digital for Corporation Tax: A comprehensive guide

Understanding Making Tax Digital for Corporation Tax

MTD rules for Corporation Tax will require incorporated businesses to keep digital records and submit returns online via HMRC-recognised software.

As with Making Tax Digital For Income Tax, businesses will be expected to send regular quarterly updates to HMRC using digital records stored in MTD-compatible software. The software can then be used to make any adjustments, claim reliefs, and finalise the company corporation tax liability. This replaces the CT600 return form and accounts and computations in iXBRL.

You’ll also be able to view an estimate of your tax liability throughout the year, which can help significantly with tax planning.

HMRC believes that MTD for Corporation Tax will bring the UK tax system closer to ‘real-time’, where businesses make submissions closer to the time of transactions.

For incorporated businesses, this will also mean being able to handle multiple business taxes from one MTD-compliant software programme in the near future – centralising key accounting activities and requirements.

Key dates and deadlines

MTD for Corporation Tax is unlikely to be implemented before April 2026 at the earliest. Incorporated businesses will need to register for MTD for Corporation Tax ahead of any mandated start date.

HMRC has suggested that a voluntary pilot will take place prior to mandation; however, this will depend on how early MTD for Corporation Tax is introduced.

MTD for Corporation Tax exemptions are likely to be few, since companies have been required to file returns online since April 2011.

Most public bodies are likely to be exempt from MTD for Corporation Tax, and people who fall within the digital exclusion criteria will also be exempt (although you’ll need to apply for an exemption).

Taxpayers who are already exempt from one set of MTD obligations (e.g. MTD for VAT) will also be exempt from MTD for Corporation Tax.

No transitional rules for MTD for Corporation Tax have been announced yet, but we’ll report back if that changes.

How Making Tax Digital affects limited companies

You must pay corporation tax on profits, and will likely fall into the MTD for Corporation Tax threshold, if you are:

• A limited liability company
• A foreign company with a UK branch or office
• A club, cooperative, or any other unincorporated association (like a community group or sports club).

Under MTD rules, you will need to send quarterly updates containing all business income and expenditure (including the date, amount, and category for each transaction). Further details of the information that should be included in these updates are yet to be confirmed. As a result, companies will need MTD-compliant and HMRC-recognised software in place to fulfil their reporting requirements for corporation tax.

It’s expected that corporation tax returns will continue to require XBRL tagging for transactions; however, this should be integrated into MTD-compatible software by the deadline.

It’s likely that MTD for Corporation Tax will be subject to the same penalty system as MTD for VAT and ITSA. In January 2023, HMRC switched to a points-based penalty system that avoids penalising taxpayers for genuine errors.

Preparing for Making Tax Digital for Corporation Tax

While we wait for HMRC to firm up the details, there are certain steps you can take to prepare for MTD for Corporation Tax:

1. Familiarise yourself with cloud-based software

It’s important to note that accounting software for MTD for corporation tax is still in development. But that doesn’t mean you can’t explore cloud-based software solutions now. Familiarise yourself with digital record keeping so you’re ready by the deadline.

2. Adapt current processes and systems for digital record keeping

Whether it’s learning new software or finding new ways to capture data for digital records, if you start adapting your processes now you’ll have plenty of time to implement changes gradually.

3. Train and support employees involved with tax

Team members who will be responsible for keeping records or submitting returns under MTD for Corporation Tax should begin learning about the legislation now.

Making Tax Digital for Corporation Tax: next steps

MTD Corporation Tax is still in development, so we can expect more updates from HMRC in the months to come.

Keeping abreast of the latest information will help you transition to MTD for Corporation Tax. Stay up to date with MTD for Corporation Tax dates, deadlines, and other news by regularly checking our MTD for ITSA content hub.