MTD for Corporation Tax has been officially scrapped.
- Xero Queen
- Jul 22
- 3 min read
The decision to scrap Making Tax Digital for Corporation Tax (MTD for CT) is indeed a significant shift in HMRC’s digital strategy, even if it’s not entirely surprising given the long delays and lack of progress.
Tucked away in HMRC's Transformation Roadmap was the news that the tax department is to abandon Making Tax Digital for corporation tax (MTD for CT). Instead, HMRC said and I quote “developing an approach to the future administration of CT that is suited to the varying needs of the diverse CT population”.
What the new approach will look like in practice isn't specified in the document aside from: “HMRC recognises that this population includes a very wide range of entities and situations, from small businesses to multinationals, from charities and property management companies to unincorporated associations.”
An actual timeline for MTD for CT hadn't been set and HMRC were instead focusing on MTD for Income Tax, which is due to launch in 2026 for those with an income threshold over £50,000. MTD for Corporation Tax hasn't been a focus for a while now, even though this is quite a step change from this original vision of digitalisation it won't come as a huge surprise to some.
Why was MTD for CT Dropped?
There are several reasons for MTD for CT being scrapped.
Complexity - Corporation Tax involves an extremely wide range of entities from small single Director businesses to large multinationals, making a one a size fits all digital solution impractical.
Lack of Clear Benefits - Many business are already using digital tools and in most cases will be filing VAT through MTD already. So the additional burden of quarterly CT returns didn't promise significant gains.
Stalled Progress - No major developments have been made since the 2020 consultation and it had been moved down the list of priorities in favor of MTD for IT.
What's Next for Corporation Tax?
HMRC is still committed to modernising Corporation Tax just not now through the MTD route. They are exploring data driven nudges and using third-party data to improve compliance. The Corporation Tax Gap has grown to 15.8% making it a key area for reform.
Other Implications
The announcement does, however, raise a few questions about other compliance changes.
Aside from MTD, the other big compliance story of late has been the requirement for small companies and micro entities to file a profit and loss account with Companies House.
After much debate, the Registrar recently confirmed that this requirement will be going ahead from April 2027. However, the Financial Times recently cast some doubt on whether this will go ahead. This uncertainty was further reinforced by a statement from the Department for Business, which said the government is committed to “avoiding undue burdens” on businesses.
As a result of the recent uncertainty to P&L reporting, today’s announcement might now lead to more people incorporating to avoid MTD IT.
I must add that it is not advise for somebody to incorporate just for this reason alone, there are other things to consider before making this decision, including higher accountancy fees and for those with a profit above £100,000 higher tax bills too.
Final Thoughts
This move signals a more flexible and data-driven approach to tax compliance, rather than rigid digital mandates. It also reflects a growing awareness that digital transformation must be proportionate and targeted, especially for complex tax areas like CT.
Comments