Research and analysis

Executive Summary

Published 22 February 2024

Prepared by Verian (formerly Kantar Public) for HM Revenue and Customs

Research report number: 748

December 2023

The views in this report are the author’s own and do not necessarily reflect those of HM Revenue and Customs

1. Introduction

Making Tax Digital (MTD) is a key component of HM Revenue and Customs’ (HMRC) vision to be a trusted and modern tax administration. MTD requires businesses to keep digital records for VAT and submit returns to HMRC using compatible software, by either bridging software or fully functional MTD software.

The purpose of this research was to capture the wider, non-tax, benefits businesses had experienced, which could be attributed to MTD-compatible software or the introduction of MTD requirements, such as digital record keeping. The research involved qualitative and quantitative research methods, undertaken in 2 stages.

2. Use of MTD-compatible software

Since the introduction of MTD, 34% of businesses have used MTD software for other processes, and 14% have introduced other software to manage other business processes digitally.

Invoice generation, financial reporting and analysis, and automatic bank reconciliation were among the more common tasks businesses now do using MTD-compatible or other new software. Larger businesses were the most likely to have used additional features of their MTD compatible software, in particular those with 50 or more employees.

3. Financial and operational benefits

Since the introduction of MTD for VAT:

• 30% of businesses felt that management of VAT had changed ‘a great deal’ or ‘somewhat’. Businesses below the VAT threshold were most likely to say that VAT management had ‘not at all’ changed.

• 25% of businesses said they had a more up to date view of their finances, rising to 54% for those where MTD meant ‘a great deal of change’.

• 42% of businesses had seen some improvement in one of the wider operational or financial areas tested. This was higher for businesses that had experienced ‘a great deal’ of change as a result of the transition to MTD.

Among those who had seen some improvements this included:

• 30% experienced improvement in business continuity

• 28% experienced improvement in managing the business’ finances

• 24% experienced improvement in dealing with their tax agent

• 16% experienced improvement in business decision making

• 20% said that they are more likely to try new digital tools.  Among tools tested in the survey, digital invoicing was the digital process that was most likely to have been implemented since the introduction of MTD (31%).

4. Time saving and productivity

Time savings and productivity improvements were key benefits experienced by many businesses:

• 58% said they had experienced faster completion of VAT returns, and 47% said there was a reduction in the effort it takes to deal with VAT.

• 45% said that using MTD-compatible software had saved them time, this was higher (60%) amongst businesses that had experienced ‘a great deal’ of change in the way they managed VAT since MTD.

• Businesses that saved time tended to use the time gained to increase their productivity at work (66%) with 90% saying that this time saving was ‘extremely’ or ‘somewhat’ valuable.

• 73% said there was no change in productivity with MTD, but 22% reported an increase versus only 3% reporting a decrease.

5. Intangible benefits

In addition to the operational, financial and time saving benefits, some businesses also experienced ‘soft’ benefits that are less tangible, such as digital and financial confidence and in their relationship with HMRC. In particular:

• 72% said they were confident using digital technologies to complete tax processes, there was a notable proportion of businesses that had seen a change in confidence as a result of MTD.

• 24% said they were more confident in using digital technologies to manage taxes, 

• 21% said they were more confident in using digital technologies in managing business processes in general.

In terms of positive impact:

• 48% said MTD had made them feel more in control of their finances

• 44% said they had less worry about their financial position

• 39% had greater confidence to delegate financial management to others

• 61% said that they felt their relationship with HMRC was more transparent

• 51% said the introduction of MTD had had a positive impact on their trust in HMRC