In its response to HMRC’s consultation on making tax digital for corporation tax (which closed on 5 March 2021), the CIOT considers whether the proposed rules will achieve the principal policy intentions of reducing taxpayer error and promoting ‘wider digital integration’. The institute’s key recommendations and observations include:
Quarterly reporting requirement for corporation tax should be waived where the company is already quarterly (or more frequently) reporting for VAT, as this already achieves the policy intention of more timely digital record keeping and submitting periodic data to HMRC.
Quarterly reporting for CT is likely to be very costly and administratively burdensome for many companies, 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.
The CIOT criticised the ‘one size fits all’ MTD solution suggested for all entities within the charge to CT (other than the small number that HMRC is proposing to exempt). The CIOT recommends further exemptions from MTD for CT, either altogether or at least from the obligation to submit quarterly reports.
MTD for CT should be implemented in stages, bringing in the simplest cases first. Bringing in all cases, including the most complex, increases the risk of unsuccessful roll-out and potential compliance costs for those in scope.
A more detailed road map than that set out in the consultation documentation (at para 1.25) would help businesses better understand the proposals, including timings, and enable them to set up appropriate procedures and processes. The CIOT suggests that HMRC should include a comprehensive plan of how MTD for CT will work for all sizes and complexity of mandated businesses.
A ‘soft landing’ phase for the introduction of digital links (as there was for MTD for VAT) would help address one key area of complexity for all but the smallest companies. The CIOT believes that the consultation should have been clearer about: (a) the need to digitally link software from transaction-level data, through various other software (potentially including statutory accounts software, CT software and tagging software) to the submission of the return, and (b) the acceptability of bridging software to allow this.
While promising that ‘accountants and agents will be able to provide a full service to their clients through MTD for CT’, considering that 85% of entities within the charge to CT rely on agents, there is a ‘remarkable lack of explanation’ around how this might work. The consultation failed to adequately recognise how agents represent their corporate clients in their interactions with HMRC to the extent envisaged by the charter promise that HMRC will ‘recognise that someone can represent you’. This area needs to be reviewed in much greater detail, says the CIOT.
Simplification of the CT system before MTD for CT is introduced would be preferable, and the CIOT would support such efforts. The Office for Tax Simplification’s 2017 review on simplifying the CT computation’ is referred to, but the CIOT is not aware of progress on any of the recommendations.
CIOT spokesperson Tina Riches said: ‘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 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,’ Riches said. ‘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.’
In its response to HMRC’s consultation on making tax digital for corporation tax (which closed on 5 March 2021), the CIOT considers whether the proposed rules will achieve the principal policy intentions of reducing taxpayer error and promoting ‘wider digital integration’. The institute’s key recommendations and observations include:
Quarterly reporting requirement for corporation tax should be waived where the company is already quarterly (or more frequently) reporting for VAT, as this already achieves the policy intention of more timely digital record keeping and submitting periodic data to HMRC.
Quarterly reporting for CT is likely to be very costly and administratively burdensome for many companies, 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.
The CIOT criticised the ‘one size fits all’ MTD solution suggested for all entities within the charge to CT (other than the small number that HMRC is proposing to exempt). The CIOT recommends further exemptions from MTD for CT, either altogether or at least from the obligation to submit quarterly reports.
MTD for CT should be implemented in stages, bringing in the simplest cases first. Bringing in all cases, including the most complex, increases the risk of unsuccessful roll-out and potential compliance costs for those in scope.
A more detailed road map than that set out in the consultation documentation (at para 1.25) would help businesses better understand the proposals, including timings, and enable them to set up appropriate procedures and processes. The CIOT suggests that HMRC should include a comprehensive plan of how MTD for CT will work for all sizes and complexity of mandated businesses.
A ‘soft landing’ phase for the introduction of digital links (as there was for MTD for VAT) would help address one key area of complexity for all but the smallest companies. The CIOT believes that the consultation should have been clearer about: (a) the need to digitally link software from transaction-level data, through various other software (potentially including statutory accounts software, CT software and tagging software) to the submission of the return, and (b) the acceptability of bridging software to allow this.
While promising that ‘accountants and agents will be able to provide a full service to their clients through MTD for CT’, considering that 85% of entities within the charge to CT rely on agents, there is a ‘remarkable lack of explanation’ around how this might work. The consultation failed to adequately recognise how agents represent their corporate clients in their interactions with HMRC to the extent envisaged by the charter promise that HMRC will ‘recognise that someone can represent you’. This area needs to be reviewed in much greater detail, says the CIOT.
Simplification of the CT system before MTD for CT is introduced would be preferable, and the CIOT would support such efforts. The Office for Tax Simplification’s 2017 review on simplifying the CT computation’ is referred to, but the CIOT is not aware of progress on any of the recommendations.
CIOT spokesperson Tina Riches said: ‘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 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,’ Riches said. ‘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.’
