Did you know that HMRC is planning to digitalise corporation tax submission and record keeping, in addition to income tax and VAT?
The plans are already under way, although HMRC says that MTD for Corporation Tax (MTD for CT) won’t be mandated until at least April 2026.
However, it’s likely a pilot programme will begin relatively soon.
At a time when we’re all focussing on MTD ITSA, it might seem strange to talk about MTD for CT. But you may find clients ask about it, because it’s only natural. After all, with VAT digitalised, and ITSA following soon, it stands to reason that the next major business tax—Corporation Tax—will fall within HMRC’s crosshairs.
Below we answer some typical questions about MTD for CT.
Remember that all of this can be taken with a pinch of salt. HMRC has yet to provide any firm details. What you see below is largely gleaned from HMRC’s consultation documents, which are by their nature speculative.
Once we know more, which will happen when the government legislates for MTD for CT, we’ll update this article—so ensure you bookmark it now!
The questions are:
- What is required for MTD for CT?
- Is there any MTD for Corporation Tax-ready software?
- Can mobile accounting apps be used for MTD for CT?
- Will smaller businesses be exempt from MTD for CT?
- What is MTD for CT “nudge messaging”?
- When can businesses start using MTD for CT?
- Is digital exclusion possible for MTD for CT?
- Do charities/non-profits/amateur sports groups have to use MTD for CT?
1. What is required for MTD for CT?
At the moment, HMRC says the following is likely for the average CT client:
- Digital record keeping. This will include transactional data, but also data such as company type, industry classification, addresses, group structures, and more. For each transaction there might also be a need for category assignation, too, according to a predefined list (e.g. trading income, interest, rent etc). This is likely to be additional to existing digital record keeping, meaning adaptation will be required even for businesses that are already 100% digital with their accounting.
- Quarterly summary updates of income and expenditure, sent to HMRC via MTD-compatible software. More information than this can be provided, if desired (e.g. tax adjustments). It’s not yet clear whether these quarterly updates will align with any existing MTD for VAT quarterly updates, and it remains feasible that MTD for CT and MTD for VAT could mean a business has eight quarterly updates each year.
- An annual CT return, again sent via MTD-compatible software. You don’t have to use a single piece of software for everything, and indeed for larger companies this is impossible. But they must all be digitally linked, in the same way as for MTD for VAT.
Agents such as accountants should be able to provide a full MTD for CT service. However, as with VAT and ITSA, the client can't simply wash their hands of it. They will still need to observe new or additional digital recording-keeping practices.
2. Is there any MTD for Corporation Tax-ready software?
Apps like AutoEntry are vital in assisting with the enormous amount of data gathering required for MTD for CT, and are ready to go right now (and right now you can get three months free—but hurry, it's only for a limited time!)
Indeed, making a switch to the automated data entry ahead of MTD for CT’s introduction makes sense, so that practices and businesses aren’t trying to undertake too many simultaneous process changes in a few years’ time.
However, there are no accounting packages that are MTD for CT-compatible right now.
Such a thing is impossible because the basic rules of MTD for Corporation Tax have yet to be defined, and the technology HMRC needs to put in place for software to connect to (known as its application programming interface, or API) hasn’t yet been made public.
However, we can expect all major accounting packages to be updated well in time for MTD for CT’s future introduction.
3. Can mobile accounting apps be used for MTD for CT?
Perhaps surprisingly, yes! Even more surprisingly, HMRC anticipates this being a major way to administer MTD for CT.
In its consultation document, HMRC suggests the following: “For some smaller companies, their main interface could be a smartphone app, which could also be used to raise invoices, receive payments and record purchases.”
Larger businesses will use more sophisticated apps, of course, or a mix of software—but there remains the digital linking requirement as with MTD for VAT (with no mention of any soft-landing period, yet). The digital linking requirement is likely to be one of the biggest hurdles for larger businesses moving to MTD for CT—everything from point of sale (POS) equipment, to branch accounting software, will have to be digitally linked so the flow of accounting data is always automated and never manual (e.g. no typing in of data, or copying and pasting).
4. Will smaller businesses be exempt from MTD for CT?
It’s seems unlikely that there will be exemptions for smaller businesses (as there is for MTD for ITSA, for example, upon its launch in April 2024). But we just don’t know yet.
However, HMRC has mentioned that it might minimise the requirements of MTD for CT to make compliance easier.
In its response to its MTD for CT consultation, HMRC says: “From the outset, the Government has appreciated that a 'one size fits all' design would not support the diverse needs of the UK CT population and that the design would need to be flexible and tailored for different parts of the population.”
If we speculate based on what else HMRC says in the consultation response document, it might be that the level of detail required in the digital record keeping and/or quarterly reports is the differentiating factor. There’s also a suggestion the quarterly reporting provision might be dropped for certain types of business.
5. What is MTD for CT “nudge messaging”?
Because MTD for CT and the software used will offer a real-time view of tax liability, HMRC expects to be able to immediately tell businesses in real-time, presumably within their MTD-compatible accounting software, when they’re doing something wrong.
This is known as nudge messaging.
It's not yet clear if this will mean an end to brown envelopes pushed through letterboxes, or if nudge messaging will supplement emails and letters.
6. When can businesses start using MTD for CT?
Perhaps surprisingly, businesses might be able to sign-up for MTD for CT as early as April 2024.
As with MTD for Income Tax Self Assessment (MTD ITSA) and then MTD for VAT, HMRC wants to test MTD for CT through a pilot programme—and mentions this could start as soon as 2024's tax year, according to the consultation documents.
Businesses can opt-in to this, assuming they have software that’s MTD-ready and the correct digital linking in place. It’s not yet clear if they’ll be able to opt out again, however. This wasn’t possible with the MTD for VAT pilot programme, and it’s unlikely to be possible with the MTD ITSA pilot programme either.
So, this will have to be a decision considered carefully at the time. For some businesses, the chance to get started ahead of time—before the crush of 2026—makes a lot of sense. It provides more time to iron out the bugs. Any MTD for CT penalty regime might not apply during this period, either, which again provides a powerful incentive to start earlier rather than plunge into it head first in 2026.
It’s not yet clear if there will be any limitations on business type or size, as there was with the MTD for ITSA pilot, where simpler entities are only allowed right now. But HMRC says it intends to mirror the way the ITSA pilot was rolled out—so we might expect this to be the case.
7. Is digital exclusion possible for MTD for CT?
Those whose location, disability or personal beliefs prohibit the keeping of digital records will once again be considered digitally excluded, as with MTD for VAT or MTD ITSA.
The good news is that if the individual or business has already been deemed digitally excluded by HMRC then it’s likely this will also apply to MTD for CT—although it isn’t clear right now if a fresh application to HMRC will be required, or whether HMRC will automatically apply the exclusion.
And just in case it isn’t clear, HMRC points out that if a business is already exempt from filing CT returns online then they will also be treated as exempt for MTD for CT.
Insolvency procedures are once again likely to lead to exemption.
8. Do charities/non-profits/amateur sports groups have to use MTD for CT?
Yes, this is likely if they’re formed as limited companies and are already liable for corporation tax.
However, in its response to the MTD for CT consultation, HMRC says it is “open to exploring a more bespoke design for [charities/non-profits] that reflects their specific circumstances”.
This is undoubtedly because many of these organisations, although registered for CT, have small turnovers and volunteer staffing—and the burden of MTD for CT therefore is considered disproportionate.