HMRC report reveals impact of Making Tax Digital for VAT

A new research report by IFF Research has examined the impact of Making Tax Digital for VAT and found that the programme has reduced the scope for error, made it easier for businesses to get their tax right, increased certainty and control, and supported digital integration.

30% of surveyed businesses felt that the benefits of Making Tax Digital outweighed the cost and effort associated with it, almost double the proportion that found the reverse (14%).

This was one of the findings from a quantitative study of 2005 interviews with businesses that had submitted a VAT return via Making Tax Digital. 

Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs - and a key initiative in HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world.

Since April 2019 all VAT registered businesses with VAT taxable turnover above the VAT registration threshold (currently £85,000) have been required to keep records digitally and use software to submit their VAT returns. Digital links between records have been required since April 2021. 

In 2017-2018 avoidable mistakes made by taxpayers cost the Exchequer more than £9.9 billion in lost revenue. By supporting businesses to get their tax right, MTD is designed to prevent these types of errors, reducing the tax gap, supporting public services and levelling the playing field for businesses.

Most businesses found the process of transitioning to submitting under Making Tax Digital easy. Two-thirds stated that signing up (67%) and making their first submission (63%) was easy, while four-fifths (80%) said the same about making ongoing submissions.

69% of businesses have experienced at least one benefit from Making Tax Digital. The most common benefits reported were that Making Tax Digital made preparing and submitting VAT returns faster (55%), and that it made businesses feel more confident they are getting tax right (53%). Of those businesses that reported a benefit, over three-quarters (78%) stated that at least one benefit had increased over time. Most commonly reported as increasing were increased confidence getting tax right (76%), speed of returns (74%), and confidence using technology (72%).

The proportion of businesses using software in record keeping has increased from 72% of businesses prior to the introduction of Making Tax Digital to 87% currently. Since moving to Making Tax Digital 18% of businesses that weren’t using software or apps have started to do so.