MTD for corporation tax might seem like it’s far away, but as MTD becomes more relevant, it’s going to become an important shift for any business. With a process so early that HMRC is still taking feedback, we can only presume for now. However, with the other related MTD changes, we can start making accurate statements. What exactly is likely to happen and how?
What is MTD for corporation tax
It is the digitalisation of corporation tax, most likely through third-party software that makes corporation tax more accessible and less prone to human error. The criteria for paying corporation tax is owning a business such as:
- A limited company
- Any foreign company with a UK office
- Any club, co-operative or similar fitting groups
As there is no tax allowance due to businesses being an entity, they pay tax on all profits made. The amount paid is 19% for the full tax period, meaning you pay nothing on losses or no profits.
MTD won’t change this process, but will simply affect how it is done. By allowing you to keep digital records of profits or losses, you can easily submit your tax return each year. It could also mean that you have to keep previous years’ documentation, as with the other MTD taxes.
Who will it affect
During the current feedback they’ve received and published, HMRC has noted various pieces of recurring information. In particular, it has been widely stated that anybody paying corporation tax should be within the MTD scope. This most likely means that anybody who is paying or will be paying corporation tax will have to do it through MTD.
However, it’s also been noted that some small businesses believe the changes have “elements that are difficult to comply with”. With this in mind, we can assume that exemption from it will be requestable on grounds of:
- Reason to believe it is unreasonable
As with income tax, each exemption request will likely be looked at on a case-by-case basis.
How to prepare
To be ready for the changes that will arrive in 4 years, businesses should start transferring their process now. It’s more effective and could unveil problems that might take years to discover otherwise.
Whilst there is no definite list of software like MTD for VAT or income tax, there is software available. An excellent example is Microsoft Excel, available on almost any PC. By integrating this software, you can become MTD compliant before it becomes a problem.
Businesses struggling to integrate the software should contact HMRC as their input would be appreciated. It’s also an opportunity to gather information on whether the business will need to overcome this difficulty in the future.