# What will MTD for Corporation Tax look like?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2020-11-14
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: HMRC Announces Ambitious Ten Year Plan: MTD Extended to
Meta Description: Discover the upcoming changes to Corporation Tax reporting under Making Tax Digital, from quarterly reporting to potential impacts on businesses. Stay informed!
URL: https://financedigest.com/what-will-mtd-for-corporation-tax-look-likehtml

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_By **Russell Gammon,** Chief Innovation Officer, Tax Systems_

MTD for VAT is now in “full swing”. Over 1.4 million businesses have signed up and filed over six million returns via the new HMRC API. From April 2021 we will see the roll out of “phase 2” (the requirement to implement digital links) and in 2022 the regime will be extended to encompass all VAT registered businesses. Keen to build upon this success and push ahead with further reform, HMRC announced back in July its intention to push ahead with an ambitious [ten year plan](https://www.gov.uk/government/publications/tax-administration-strategy/building-a-trusted-modern-tax-administration-system) that will see MTD extended to both Income and Corporation Tax.

The announcement stated that a consultation for the design of a new system for MTD for [Corporation Tax](https://www.financedigest.com/irish-corporate-tax-boom-breaks-more-records-in-november.html "Irish corporate tax boom breaks more records in November") would begin before the end of this year. We don’t yet know the precise details but we do know such as design will attempt to apply the [lessons learnt](https://www.financedigest.com/lessons-learnt-what-financial-technologies-will-survive-post-covid.html "Lessons learnt: What financial technologies will survive post-COVID?") from MTD for VAT. A recent [evaluation](https://www.gov.uk/government/publications/making-tax-digital-review) of that service has been revealing.

The evaluation report found that [businesses only experienced accuracy and efficiency benefits when they used “fully integrated](https://www.financedigest.com/building-a-business-case-for-integrated-payments.html "Building a Business Case for Integrated Payments") software” as opposed to doing the minimum to comply, by using bridging software, for example. [Bridging software was found to have “minimal impact on the capacity for error” and these businesses](https://www.financedigest.com/is-it-risky-to-use-bridging-finance-for-my-business.html "Is it risky to use bridging finance for my business?") are having to rethink their compliance to meet the obligations for digital links. Other concerns flagged by [businesses included the need](https://www.financedigest.com/3-reasons-your-business-needs-customer-reviews.html "3 reasons your business needs customer reviews") for supplementary guidance to help with software selection, lack of support from HMRC and the potential for withdrawal of vendor support.

**_Quarterly reporting_**

MTD for Corporation Tax has the potential to be far more complex, disruptive and demanding than MTD for VAT. There are a number of ways the regime is expected to change. By far the most widely anticipated is a move from annual to quarterly reporting, which is a material change to the [reporting cycles of tax](https://www.financedigest.com/transforming-vat-how-is-europe-modernising-tax-reporting.html "Transforming VAT: How is Europe modernising tax reporting?") departments. This will allow for “better targeted policy” so that in the event we do see any [future crises akin to the Coronavirus pandemic](https://www.financedigest.com/marketing-communications-is-a-business-critical-pillar-now-and-in-a-post-pandemic-future.html "Marketing Communications is a business-critical pillar now – and in a post pandemic future"), the government can more readily respond given the increased amount of information available at their fingertips.

Yet while reform of Corporation Tax processes is to be welcomed, there are concerns over how businesses will adjust to quarterly reporting. The increase in frequency could [see businesses required to generate as many as six returns](https://www.financedigest.com/britains-metro-bank-returned-to-profit-in-september-sees-no-customer-stress.html "Britain’s Metro Bank returned to profit in September, sees no customer stress") a year (four quarterly, a true-up and an annual return), compared to the single return we have today. This could create a significant additional burden for finance and tax teams as it will effectively add to the [usual](https://www.financedigest.com/not-business-as-usual-for-g20-foreign-ministers-meeting-in-bali.html "Not ‘business as usual’ for G20 foreign ministers meeting in Bali") “busy season” with more deadlines.

Such radical change could also see a [transformation of the dominant tax models we have today](https://www.financedigest.com/evolution-not-revolution-digital-transformation-today.html "EVOLUTION, NOT REVOLUTION: Digital transformation today"). The ability of both in-house tax teams and advisory businesses (who complete outsourced computations) to access sufficient resource could be brought into question. As a result, we could see a movement away from these to a co-sourcing model, where different parts of the returns are completed by different teams (internal vs. external), for example.

**_Using projections_**

The way in which reporting is carried out is also likely to change under a quarterly system. For parts of the calculation, each return would [need to be a “best estimate” of the Corporation Tax position of the business](https://www.financedigest.com/uk-needs-to-make-politically-unpopular-reforms-to-boost-growth-business-group-says.html "UK needs to make politically unpopular reforms to boost growth, business group says"), as it would be unreasonable for a full calculation of certain items to take place each quarter.

To provide businesses with an earlier view of their tax liability, a [projected Corporation Tax position](https://www.financedigest.com/tissue-tapes-market-remains-afloat-amid-covid-19-pandemic-to-surge-positively-projects-fmi-2019-2029.html "Tissue Tapes Market Remains Afloat amid COVID-19 Pandemic, to Surge Positively, Projects FMI 2019 – 2029") would therefore be required. Published accounts, as one of the normal starting points, would not be available with the period ongoing and so source data from accounting systems would have to be used. This would place significant importance on the ability to access reliable data, so the data collection part of the [process is likely to need significant automation](https://www.financedigest.com/what-businesses-can-achieve-with-microsofts-full-suite-of-process-automation-tools.html "What businesses can achieve with Microsoft’s full suite of process automation tools") in order to pull this data from disparate sources and run diagnostics to ensure it is fit for use.

Many businesses are used to working with a “tax-based trial balance”, during the annual or semi-annual provisioning cycle. It will be [interesting to see](https://www.financedigest.com/portugal-pm-welcomes-lufthansas-interest-in-tap-scholz-sees-good-fit.html "Portugal PM welcomes Lufthansa’s interest in TAP, Scholz sees good fit") what similarities and differences there are between this process, and the process to provide an estimate to HMRC. Given the timescales, we would also expect some form of predictive analytics to come to the fore in the compliance software, to help [estimate future](https://www.financedigest.com/egg-incubator-market-extensive-analysis-of-key-segments-of-the-industry-and-emerging-growth-factors-with-current-trends-and-future-estimations.html "Egg Incubator Market: Extensive Analysis Of Key Segments Of The Industry And Emerging Growth Factors With Current Trends And Future Estimations") positions.

**_MTD requirements_**

In order to [understand how MTD for Corporation](https://www.financedigest.com/corporate-leadership-understanding-your-own-bias.html "Corporate Leadership: Understanding Your Own Bias") Tax might work, it’s worth recapping the original remit. MTD was one of the “Four foundations” within the Government’s roadmap, within which the prospect of quarterly updates to HMRC were mooted. The roadmap did not distinguish between the [taxes involved but said simply that businesses would be “required to use digital](https://www.financedigest.com/self-employed-taxpayers-and-making-tax-digital.html "Self-employed taxpayers and Making Tax Digital") tools, such as software or apps, to keep records of their income and expenditure”. That software would then automatically produce tax calculations, scan for any errors or mistakes, and update tax return data on HMRC systems directly and in a “light-touch” manner.

MTD is now broadly understood to feature two key requirements: digital accounting records and functional compatible software to submit updates and the return to HMRC. This software [must use HMRC’s API platform and so the commercial software currently used by large businesses to prepare and submit their Corporation](https://www.financedigest.com/why-corporates-must-beware-of-using-cryptocurrency.html "Why corporates must beware of using cryptocurrency") Tax returns will require updating. Once the [business signs up for MTD for VAT](https://www.financedigest.com/how-choosing-the-right-mtd-for-vat-software-can-maximise-business-benefits.html "How choosing the right MTD for VAT software can maximise business benefits"), they cease to be able to use the existing online tax return service hosted by HMRC so it’s safe to assume this will again be the case with MTD for Corporation Tax.

**_Digital linking_**

Under MTD for VAT, we’ve also seen the requirement to link from the digital records all the way through to the final calculation and the submission to [create](https://www.financedigest.com/how-to-create-value-in-digital-transformations.html "How to create value in digital transformations") a digital end-to-end process. It’s not yet clear if this digital link requirement will be extended to Corporation Tax, although it’s sensible to assume the increased frequency of [reporting will require compliance software to be far more tightly integrated with the systems used for record](https://www.financedigest.com/uk-retailers-report-record-food-inflation-but-see-falls-ahead.html "UK retailers report record food inflation but see falls ahead") keeping.

Incorporating [digital links into Corporation Tax would represent a material change](https://www.financedigest.com/why-the-time-is-right-for-finance-to-embrace-digital-change.html "Why the time is right for finance to embrace digital change") in the way returns are prepared. That said, many aspects of the tax computation could be brought together by [software with little in the way of manual intervention and so are prime candidates for automation](https://www.financedigest.com/guide-to-the-most-affordable-marketing-automation-software.html "Guide To The Most Affordable Marketing Automation Software"). Software [providers are already using machine reading techniques to apply basic income and expense analysis](https://www.financedigest.com/comparative-analysis-of-the-best-data-room-providers.html "Comparative Analysis of the Best Data Room Providers") for tax purposes, and claims such as capital allowances and utilising losses could well be applied automatically.

_[**Transformative technology**](https://www.financedigest.com/the-healthcare-vertical-to-undergo-technological-transformation-at-every-stage-right-from-prenatal-testing-to-the-onset-of-ailments-related-to-aging-or-chronic-ailments.html "The Healthcare Vertical to undergo technological Transformation at every stage – right from prenatal testing to the onset of Ailments related to aging or chronic ailments")_

Significant [technological advances](https://www.financedigest.com/cardiac-valvulotome-market-growth-latest-trends-top-players-competition-technological-advancements-outlook-and-forecast-2028.html "Cardiac Valvulotome Market Growth, Latest Trends, Top Players, Competition, Technological Advancements, Outlook and Forecast 2028") have been made in tax since the government outlined its plans under MTD. This means businesses will be able to take advantage of a number of processing techniques. With regards to data collection, Extract Transform and Load (ETL) tools can automatically pull data from one place to another, for example. This could significantly boost productivity as up to 75 percent of the time taken to complete Corporation Tax returns today is spent on manual or semi-automated data collection.

The type of software that will be needed for MTD for [Corporation Tax does share some common ground with MTD for VAT](https://www.financedigest.com/becoming-data-ready-for-mtd-for-corporation-tax-aligning-vat-and-ct.html "Becoming data-ready for MTD for Corporation Tax: aligning VAT and CT"). It’s likely to use [data analytics](https://www.financedigest.com/top-5-data-analytics-trends-for-2023.html "Top 5 Data Analytics Trends for 2023") to project future liabilities, for instance, which are also used in MTD for VAT for forecasting purposes. This could prove fortuitous for businesses as it means some will be able to leverage their existing MTD solution. Indeed, where firms choose a single MTD solution for multiple taxes, having a single “pane of glass” provided by a software [product to view the affairs of the overall tax function](https://www.financedigest.com/impact-com-announces-new-product-functionality-for-b2b-saas-through-partnership-with-hubspot.html "impact.com announces new product functionality for B2B SaaS through partnership with HubSpot") could be a real benefit to many businesses.

There are, however, areas of the tax computation where either human-touch or a wider view will still be required and it remains to be seen how these challenges will be tackled. The intangible fixed assets regime, for example, is based upon following the accounting treatment, and the complexities of calculations such as the Corporate Interest Restriction (CIR) realistically could not be performed four further times per year. How the accruals principal is to be applied would also need consideration, for example in respect of [retail businesses who experience seasonal sales](https://www.financedigest.com/german-retail-sales-dip-more-than-forecast-in-august.html "German retail sales dip more than forecast in August") and for whom quarterly reporting would give a misleading picture.

As with MTD for VAT, which had to make provisions for adjustments and amendments, and even exceptions in some cases, working out a way of digitalising Corporation Tax is going to take time. The initial consultation phase will aim to capture concerns. It will also seek to identify ways in which technology can be used to increase the frequency of [reporting without increasing the risk of error](https://www.financedigest.com/metro-bank-former-top-bosses-fined-over-reporting-error.html "Metro Bank, former top bosses fined over reporting error") or overburdening finance and tax teams. It remains to be seen how the reform will [deal](https://www.financedigest.com/exclusive-indian-car-makers-propose-tax-cut-on-imports-in-trade-deal-with-britain.html "Exclusive-Indian car makers propose tax cut on imports in trade deal with Britain") with the finer details but what we can be sure of is that MTD for Corporation Tax has the potential to fundamentally reshape the tax sector.


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