Making Tax Digital for Corporation Tax: Charities

In 2026, charities may have to report to HMRC for Corporation Tax purposes under new Making Tax Digital rules, which may mean providing information on income/expenditure to HMRC on a quarterly basis.

We understand from the Charity Tax Group that HMRC currently believe that most charities could need to file CT returns to HMRC going forward.

Background information

Originally the government said that non-trading activities of charities would be outside of the scope of Making Tax Digital (MTD). However, they say that:

MTD for VAT has shown that, at least for larger charities, operating the MTD requirements has not proved to be more than difficult than for a comparable business. Moreover, discouraging some charities from joining MTD by in effect making it voluntary will mean many will not get the benefits of going digital that other entities will enjoy.

As a result the government proposes to extend the scope of MTD for CT to all charities that are within the scope of Corporation Tax (CT) and are required to file a CT return, not just trading subsidiaries.

What is MTD for CT?

Whilst details have not been published on if/how MTD for CT would apply to charities, for an average company it would involve:

  • Ensuring records are maintained digitally
  • Using MTD software to provide quarterly summaries of income/expenditure to HMRC
  • Submit an annual CT return in MTD compatible software

The image below demonstrates the change:

Source

When is MTD for CT likely to be introduced?

MTD for CT will not be introduced until 2026 at the earliest.

Whilst this is a long way off, HMRC are consulting now on various proposals, so now is our opportunity to feedback.

How might this impact charities?

It is not clear how charities will be affected by this. For example:

  • Could irregular filing be abolished (i.e. meaning all charities would have to file a return annually)?
  • Could charities be exempted from filing quarterly reports?
  • How much will this additional administration cost in terms of time and software expenditure?

MHA Tait Walker are attending an event on the 9th of February to find out more and feed back preliminary concerns.

Call for information

We intend to respond to the whole consultation document in writing. To assist with our response we would like to ask our clients if they have any feedback on the charity specific questions.

In the consultation document, page 32/33 sets out the position for charities, CASCs and other NFP organisations. There are two key areas that HMRC are asking for responses to:

  1. Question 19: Should charities, CASCs and other not for profit organisations, be within the scope of MTD for CT where they have income within the charge to CT and required to complete a Company Tax Return? If not, please explain why you consider an alternative approach is necessary for charities and what criteria should be applied to assess eligibility for this?
  2. The government welcomes views from charities, CASCs and other not for profit organisations on how MTD requirements might best be tailored to work for them.

Contact us

If you have any comments or would like to discuss this further, please email Louise Cottam (Charity Tax Manager) at louise.cottam@taitwalker.co.uk by 1st March 2021.