Opinion Former Article

Tax bodies urge cautious approach to change to corporation tax obligations

Tax professionals welcome the Government’s publication today of a consultation on Making Tax Digital (MTD) for Corporation Tax – especially the confirmation that it is not compulsory for companies until at least 2026.1

Tina Riches, Chair of the Joint Association of Taxation Technicians (ATT) and Chartered Institute of Taxation (CIOT) Digitalisation and Agent Services Committee, said:

“We are pleased to see that HMRC have indicated that Making Tax Digital (MTD) for Corporation Tax is not happening before 2026, and that HMRC are engaging with the profession, rather than rushing to implement first and examine later.

“We do not believe that the case has been adequately made that the benefits of MTD to taxpayers and HMRC justify the costs, particularly in relation to the proposed extension to corporation tax. We are disappointed that the consultation presupposes that most entities within the charge to corporation tax should be within the scope of MTD, before the costs and benefit arising to different parts of the population have been established.

“MTD for VAT is still in its infancy, and we know from a parliamentary question published this week that the Government is drawing up revised estimates for the costs to businesses of MTD, despite it being made compulsory for most VAT registered firms back in April 2019, and commitments to extend the requirements to all VAT registered businesses from April 2022, and unincorporated businesses for income tax from April 2023.2

“The concerns that surfaced in our survey3 also cast doubt on whether compulsion is the right approach to extending MTD, or if it will deliver the significant reduction in the tax gap sought. It would be premature to extend MTD further without reliable evidence to demonstrate it will achieve its purpose.”

This is particularly the case with MTD for Corporation Tax, where ATT and CIOT believe it is questionable whether there will be any positive difference for companies, especially larger ones. If a key purpose of MTD is to encourage taxpayers to become digital then it is not necessary to extend it to corporation tax, as a large proportion of companies are VAT registered and so already in MTD for VAT, or using digital records anyway.

Tina Riches said:

“It is difficult to envisage how the complex nature of the accounting and corporation tax rules, especially when applied on a group or international basis, will interact with MTD. There is a real risk that implementing MTD for corporation tax could result in an expensive quarterly reporting exercise for companies, with no net benefits for any of the parties involved.”

Notes for editors

1. Making Tax Digital: Corporation Tax and Consultation document was published today – Link

2. Parliamentary answer published on 9 November 2020:  https://questions-statements.parliament.uk/written-questions/detail/2020-11-03/110718

3. More information on the joint CIOT/ATT survey is here: Survey results contradict government claims of realising benefits of digital tax reporting – January 2020

4. Making Tax Digital is a key part of the Government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:

more effective
more efficient
easier for taxpayers to get their tax right

MTD for VAT

VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are now required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns. If you are below the VAT threshold you can voluntarily join the Making Tax Digital service now. VAT-registered businesses with a taxable turnover below £85,000 will be required to follow Making Tax digital rules for their first return starting on or after April 2022.

 

MTD for ITSA

Self-employed businesses and landlords with business or property income over £10,000 will need to follow the rules for MTD for Income Tax for their first return period starting on or after 6 April 2023. Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for Income Tax. If you are a self-employed business or landlord you can voluntarily use software to keep business records digitally and send Income Tax updates to HMRC instead of filing a Self-Assessment tax return.

5. The Association of Taxation Technicians

The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.

The Chartered Institute of Taxation

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

More Articles by Chartered Institute of Taxation (CIOT) ...

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