What is Making Tax Digital for Corporation Tax?

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Making Tax Digital for Corporation Tax is one of the most significant changes UK limited companies will face over the coming years. I speak to directors about this regularly and the reaction is usually the same. They have heard the phrase, they know it is coming, but they are not entirely sure what it actually means in practice or how much it will affect them.

From my perspective as a chartered accountant advising limited companies every day, Making Tax Digital for Corporation Tax is not just a technical HMRC project. It represents a fundamental shift in how companies keep records, report figures, and interact with the tax system. Some businesses are already well prepared without realising it, while others will need to make meaningful changes to avoid stress and disruption later.

In this article I will explain what Making Tax Digital for Corporation Tax is, why it exists, when it is expected to apply, what HMRC will require from companies, and how I am advising clients to prepare in a practical and proportionate way. My aim is to remove uncertainty and replace it with clarity, so you understand what is coming and what you actually need to do.

What Making Tax Digital means in simple terms

Making Tax Digital is HMRC’s long term programme to modernise the UK tax system. The core idea is that businesses should keep digital records and submit information to HMRC directly from compatible software, rather than relying on manual processes and annual catch ups.

Making Tax Digital already applies to VAT for most VAT registered businesses and has changed how VAT records and returns are handled. Making Tax Digital for Corporation Tax builds on that same principle but applies it to limited companies and Corporation Tax instead.

In simple terms, Making Tax Digital for Corporation Tax will require companies to:

• Keep accounting records digitally

• Use HMRC compatible software

• Send information to HMRC more frequently

• Move away from a single annual Corporation Tax submission

This is a cultural change as much as a technical one.

Why Making Tax Digital for Corporation Tax is being introduced

HMRC’s stated aim is to reduce errors, improve accuracy, and bring tax reporting closer to real time.

From HMRC’s point of view, annual Corporation Tax returns submitted many months after a year end increase the risk of errors and make it harder to monitor compliance. By requiring digital records and more frequent updates, HMRC believes it will have better visibility and companies will have a clearer view of their tax position throughout the year.

The programme is being driven by HMRC and follows the same policy direction as Making Tax Digital for VAT and Income Tax.

Whether or not businesses agree with the reasoning, the direction of travel is clear and unlikely to be reversed.

When Making Tax Digital for Corporation Tax is expected to start

One of the most common questions I am asked is when this will actually happen.

At the time of writing, Making Tax Digital for Corporation Tax has not yet been fully implemented. HMRC has confirmed that it will not apply before April 2026 at the earliest, and even then it is expected to be phased in gradually rather than switched on overnight for all companies.

This phased approach is important. It gives businesses time to adapt and allows HMRC to refine the system based on real world use.

However, the delay should not be seen as a reason to ignore it. In my experience, businesses that prepare early have far less disruption when changes eventually become mandatory.

Which companies will be affected

Making Tax Digital for Corporation Tax is expected to apply to most UK limited companies that pay Corporation Tax.

This includes:

• Small owner managed companies

• Trading companies

• Investment companies

• Companies already using accounting software

Large companies already operating under complex digital reporting systems may see fewer changes, but smaller companies that rely heavily on spreadsheets or annual bookkeeping will be more affected.

Some exemptions or transitional rules may apply in limited circumstances, but the direction is towards broad inclusion rather than narrow scope.

What digital records mean for limited companies

One of the key requirements under Making Tax Digital is the keeping of digital records.

This does not simply mean having a spreadsheet. HMRC expects businesses to maintain digital records that can link directly to submissions made to HMRC, either through software or through digitally linked systems.

In practice, digital records usually include:

• Sales invoices

• Purchase invoices and expenses

• Bank transactions

• Payroll records

• VAT records where applicable

For many companies already using cloud accounting software, this requirement is largely met. For others, especially those relying on manual records or year end spreadsheets, this will require a change in process.

Quarterly updates under Making Tax Digital

A major change under Making Tax Digital for Corporation Tax is the move towards more frequent reporting.

Instead of submitting one Corporation Tax return after the year end, companies will be expected to provide quarterly updates to HMRC during the accounting period.

These quarterly updates are not expected to be final tax calculations. Instead, they are summaries of income and expenses that give HMRC a picture of how the business is performing throughout the year.

From my point of view, the purpose of quarterly updates is visibility rather than precision.

End of period statement and finalisation

Alongside quarterly updates, companies will still need to finalise their figures after the year end.

This involves preparing an end of period statement and a final Corporation Tax calculation. Adjustments such as accruals, capital allowances, and tax reliefs are expected to be made at this stage rather than in the quarterly updates.

In effect, the year end process does not disappear, but it becomes part of a wider reporting cycle rather than the only interaction with HMRC.

How Making Tax Digital affects the role of the accountant

Making Tax Digital for Corporation Tax does not remove the need for an accountant. In my view, it makes the accountant’s role more important and more involved throughout the year.

Rather than focusing heavily on year end compliance, the role shifts towards:

• Ongoing record review

• Quarterly reporting support

• Forecasting tax liabilities

• Helping clients understand figures in real time

This can actually improve decision making for businesses, provided it is implemented sensibly.

Benefits for businesses when handled properly

Although Making Tax Digital is often viewed negatively, there are potential benefits when it is handled well.

These include:

• Better visibility of cash flow and tax liabilities

• Fewer year end surprises

• More up to date financial information

• Improved financial discipline

For businesses already working closely with their accountant, this can enhance the relationship rather than complicate it.

Common concerns I hear from directors

Despite the potential benefits, there are genuine concerns that come up repeatedly.

The most common include:

• Increased admin burden

• Higher accountancy fees

• Fear of making mistakes more often

• Worry about HMRC scrutiny

These concerns are understandable. My role is usually to separate what is genuinely new from what is simply being formalised.

In many cases, the work businesses should already be doing is what Making Tax Digital requires.

Software requirements and compatibility

Under Making Tax Digital for Corporation Tax, submissions must be made through compatible software.

This does not necessarily mean expensive or complex systems, but it does mean moving away from purely manual records.

Most modern accounting platforms are already working towards compatibility. For companies not currently using accounting software, this is the biggest change and one that needs planning rather than rushing.

How I advise clients to prepare now

Preparation does not mean changing everything immediately. In my experience, the most effective approach is gradual and proportionate.

I usually advise clients to:

• Move to digital bookkeeping if they have not already

• Keep records up to date rather than annually

• Review bookkeeping quality regularly

• Understand their numbers quarterly

• Speak to their accountant early

These steps add value even without Making Tax Digital and make future compliance much easier.

What Making Tax Digital does not mean

It is important to clear up a few misconceptions.

Making Tax Digital for Corporation Tax does not mean:

• HMRC will calculate your tax for you

• Quarterly updates are final tax bills

• Accountants are no longer needed

• Every business must adopt complex systems

Understanding what is not changing helps reduce unnecessary anxiety.

The risk of leaving preparation too late

The biggest risk I see is businesses ignoring Making Tax Digital until it becomes mandatory.

This often leads to:

• Rushed software decisions

• Poor quality records

• Higher costs

• Increased stress

Early preparation spreads the workload and allows systems to bed in naturally.

How this fits into the wider Making Tax Digital programme

Making Tax Digital for Corporation Tax is part of a broader shift that already includes VAT and Income Tax.

Over time, HMRC’s vision is a fully digital tax system where records are maintained continuously and tax positions are visible in near real time.

Whether businesses like this vision or not, it is clearly the direction of travel.

Final thoughts

Making Tax Digital for Corporation Tax is not just another compliance tweak. It is a structural change in how limited companies report and manage their tax affairs.

In my view, the key to handling it well is understanding that it is not purely an HMRC exercise. Done properly, it can improve financial awareness, reduce last minute pressure, and support better decisions.

The businesses that struggle most will be those that see it as something being imposed on them rather than something to plan for. With the right support and a measured approach, Making Tax Digital for Corporation Tax does not need to be disruptive.

If anything, it can be an opportunity to bring clarity and control into areas of the business that have previously been left until the year end.

You may also find our guidance on How do I pay Corporation Tax for my company and What records does a limited company need to keep helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.