Making tax digital – what businesses really think

31 May 2022

As we know, the nation is moving ever closer to the start of Making Tax Digital (MTD). From 1st April 2022, all businesses which are registered for VAT are making digital submissions, and from 6th April 2024 this will extend to landlords and businesses whose aggregate annual turnover exceeds £10,000.

On 27th May 2022, HMRC published research on “Customer readiness” and the results are not entirely encouraging.

2200 randomly selected taxpayers were surveyed to ascertain their readiness and attitude towards MTD. This sample was then subdivided into six groups and in descending order of enthusiasm for MTD these were:

  • Receptive and capable (32%)
  • Complex and capable (10%)
  • Capable but disengaged (25%)
  • Cautious and lacking confidence (15%)
  • Resistant and less capable (16%)
  • Short tax return (2%)

The ‘receptive and capable’ group were mostly younger and more IT literate. 90% had turnover below the VAT registration limit and 44% were already using an agent. This group was almost entirely comfortable with using business software and saw no difficulties in making regular submissions. Nonetheless, 31% of this group were still using paper-based systems.

In some respects, the ‘complex and capable’ can be ignored. These are mostly established businesses which are already using software, filing VAT returns online and with a support structure of agents and employees. Only 28% thought that using software would be difficult, but there was an even split on the question of whether submitting information would be easier or quicker. 23% of this group were, however, still using paper systems

For the remaining groups, the position was rather different. Looking at them together, less than 10% felt that using the software would be easy, and less than a quarter believed that information would be quicker and easier to submit. Usage of paper-based systems was highest in these groups ranging from between 41% to 76%.

The full report extends to some 46 pages. Aside from the statistics, it includes a number of quotes from respondents including some which suggested that, rather than comply, taxpayers would take early retirement or wind businesses down to below the £10,000 level. Circumstantial evidence suggests that this has already happened for some small VAT registered businesses.

Commenting on the report, Partner, Joe Spencer said,

“Looking at the figures in aggregate, and disregarding the “complex and capable” , it appears that over 2/3rd of those likely to be affected by MTD are feeling somewhere between unenthusiastic and hostile.” One wonders if the increased level and difficulty of compliance may even have the effect of suppressing new businesses or encouraging the black economy? With less than two years to go, HMRC need to step up awareness or better still, to raise the entry limit – four years of deferrals and rising inflation will undoubtedly bring in far more taxpayers than was originally suggested.

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