Concerns about new digital tax reporting rules

According to the CIOT, the government’s Making Tax Digital for Corporation Tax may fail to meet its policy objectives and could potentially be costly for businesses.

Making Tax Digital for Corporation Tax (MTD for CT)will require companies to keep digital records and provide regular electronic updates to HMRC directly from their digital records, to prove that records are being kept digitally.

HMRC are expecting MTD to reduce errors, however, the Chartered Institute of Taxation (CIOT)believes that it could result in potential costs and burdens on businesses, and so in a recent submission to HMRC, it is calling on the government to:

• Waive the quarterly reporting requirement for corporation tax where the company is in MTD for VAT.
• Exempt more businesses either from MTD for CT altogether or at least from the obligation to submit quarterly reports to HMRC.
• Ensure that the rules are not overly prescriptive, in order to prevent high compliance costs for no meaningful benefit.
• Implement MTD for CT in stages, focusing on simple businesses and basic requirements first.
• Simplify the corporation tax system before MTD for CT is introduced.
• Adopt a ‘soft landing’ phase for the introduction of digital links as there was for MTD for VAT.

CIOT spokesperson Tina Riches, commented, “Quarterly reporting for corporation tax should be waived where the company is already quarterly (or more frequently) reporting under MTD for VAT, as this already achieves the policy aim of more timely digital record keeping and submitting periodic data to HMRC.

“The proposal for quarterly reporting for corporation tax is likely to prove very costly and administratively burdensome for many companies to comply with, particularly large and medium-sized companies and groups, with no obvious benefits to either them or HMRC. Most of these businesses are highly likely to have been using software and keeping digital records for many years already.

“Digitalisation can give rise to benefits, but these must be compared to the costs of introducing new digital requirements just for corporation tax before new additional administrative burdens are placed on business. The complexity of large companies and groups means that MTD as currently proposed will add significant burdens for this population and will be very expensive for them to implement; yet will not fulfil the HMRC’s objective of improving compliance generally and removing errors, most of which appear in small businesses.

“It does not make sense to impose a ‘one size fits all’ solution on all businesses liable to pay corporation tax. We strongly suggest that more businesses are exempted either from MTD for Corporation Tax altogether, deferred until a later date as happened with VAT, or exempted at least from the obligation to submit quarterly reports to HMRC.”

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