HMRC Drops Plans for Making Tax Digital for Corporation Tax

HMRC officially stated that it would no longer proceed with introducing Making Tax Digital for Corporation Tax. The news, quietly added to its latest digital change roadmap, is a clear change from the earlier plans of digitalising the entire tax system.

The action means that firms are no longer required to maintain online accounts or submit quarterly returns for corporation tax, which is a big shift from the original plan. Instead, HMRC stated that it will seek alternative means of reworking the corporation tax system in a manner that more closely matches the diversity of taxpayers it has to deal with.

Focus Switches to More Targeted Approaches

Corporation tax is paid by a wide range of organisations — from small businesses and charities to multinationals and property companies. Rather than a one-size-fits-all solution under the MTD regime, HMRC appears to be moving towards a more flexible, more focused approach to driving up compliance in this sector.

While there aren’t enough details, HMRC has said that any new direction would have to take into account the diversity of the organisations that corporation tax is paid by. That would point to going away from wholesale reforms and towards initiatives better designed for various segments of taxpayers.

A Quiet Ending to Making Tax Digital for Corporation Tax

Although officially scrapped, the majority of people working within the accounting and tax community already had the impression that the project was in crisis. HMRC had not moved on the timeline for Making Tax Digital for Corporation Tax, nor had the public been consulted on it since 2020.

MTD for Income Tax, unlike Making Tax Digital for Corporation Tax, continues to move forward without interruptions, with the take-up to start in April 2026 for those earning over £50,000. This scheme has been given priority over the recent years, leaving MTD for Corporation Tax at the back of the queue until it was dropped entirely.

Implications for Businesses & the Tax Gap

One of the reasons for the original MTD proposal was to reduce error in tax and close the tax gap. Ironically, HMRC’s latest statistics show that the corporation tax gap has risen, from 6.4% in 2011–12 to 15.8% in 2023–24. Corporation tax now accounts for a large proportion of all tax losses.

Despite abandoning Making Tax Digital for Corporation Tax, HMRC has indicated that it still uses technology in the interest of compliance. This includes the use of automated nudges and data-driven prompts on the basis of third-party data. These practices aim to help companies with submitting more accurate returns, even without having a full MTD system in place.

Some tax experts wonder if Making Tax Digital for Corporation Tax would have reduced the gap. Several firms, especially medium and large ones, already hold digital records. Adding more requirements may not have delivered significant benefits and might have brought extra complexity for minimal gain.

What’s Coming Up for Corporation Tax?

Although the Making Tax Digital for Corporation Tax project is scrapped, it does not mean that corporation tax itself will remain unchanged. HMRC’s intentions suggest that modernisation is still one of their main agendas. The tax authority has noted the need for a more advanced system that acknowledges the unique challenges of each business type.

In addition, ongoing discussion about filing requirements for small companies and micro-entities, like the proposed requirement to file profit and loss accounts at Companies House, shows corporate reform of compliance remains in the pipeline over the next few years.

Some commentators have noted that the news today might even influence incorporation decisions. No one proposes forming a company purely to avoid MTD for Income Tax, but this news could be sufficient enough to convince some that are already considering incorporation for some other reason.

Conclusion

Ditching Making Tax Digital for Corporation Tax is a big change in HMRC’s digitalisation approach. While it will be disappointing for those who had wished for a more integrated tax system, it’s a more sensible realisation of how much a business can realistically handle, especially since many of them are already using digital technology tools voluntarily.

HMRC’s focus now appears to be on making effective use of data and providing support where it is needed, instead of demanding strict digital processes across the board. As MTD for Income Tax phases in overtime and other corporate reforms are planned, the future of tax compliance in the UK may remain digital — but not as what was originally imagined.