Making Tax Digital: Estimating the wider economic benefit
Published 27 February 2025
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1. Executive summary
Making Tax Digital is a key part of HM Revenue and Customs’ (HMRC) transformation of the tax system to make it easier for taxpayers to get their tax right first time, help reduce scope for error and enhance customer experience. Since April 2022 all VAT registered businesses should be using Making Tax Digital compatible software to keep digital records and submit returns.
This paper outlines the methodology and results of analysis to estimate the wider economic benefit of Making Tax Digital, beyond any requirements to meet tax obligations.
Using responses from a survey with businesses in Making Tax Digital for VAT using fully functional software, we estimate the average time savings businesses have experienced due to Making Tax Digital and a financial value of this time.
The results show that, on average, businesses have saved time on their ‘business’ finances and record keeping’ compared to time spent before Making Tax Digital. Across all VAT businesses using fully compatible software, the time saved is estimated to be between 26 hours and 40 hours per business per year.
When extrapolated to the population, we estimate a time saving of between 32 million hours and 49 million hours in the 2022 to 2023 tax year across all businesses in Making Tax Digital for VAT using fully functional software. The financial value of this time is estimated to be between £603 million and £915 million.
The results of our analysis provide strong evidence that Making Tax Digital is having a positive impact for businesses. The findings complement other published estimates of the administrative burden of Making Tax Digital and demonstrate a wider economic benefit, beyond any requirement to meet tax obligations.
2. Introduction
Making Tax Digital is a key part of HMRC’s transformation of the tax system to make it easier for taxpayers to get their tax right first time, help reduce scope for error and enhance customer experience. Since April 2022 all VAT businesses should be using Making Tax Digital compatible software to keep digital records and submit returns. For individuals, Making Tax Digital for Income Tax will be introduced in phases from April 2026.
HMRC has undertaken a rigorous evaluation of the impact of Making Tax Digital for VAT, which highlighted both costs and benefits to businesses (IFF Research, 2021) and (Verian, 2025). Most cited were the costs of introducing new software and the benefit of faster preparation or submission of VAT returns.
Building on this, there is a growing body of evidence from research and insights into businesses within Making Tax Digital for VAT, which demonstrates that Making Tax Digital is securing a range of benefits for those that use it in practice. These include the wider benefits of going digital, such as through:
- reduced time spent on wider elements of business administration
- improved efficiency and greater productivity
- better business management
- a streamlined, digital experience
Making Tax Digital requires businesses to keep digital records and file tax returns using compatible software. The software will either:
- allow businesses to keep digital records and submit tax returns. There may also be additional functionality available. In this paper this is described as ‘fully functional software’
- connect non-compatible software (like spreadsheets) to HMRC systems. This is known as ‘bridging software’
This paper outlines the methodology and results of analysis to estimate the wider economic benefit of Making Tax Digital, beyond any requirements to meet tax obligations. We estimate time savings and a financial value of this time for businesses using fully functional Making Tax Digital-compatible software.
3. Methodology
In 2022, HMRC commissioned Kantar Public (known as Verian from November 2023) to conduct research to explore, and quantify the wider, non-tax benefits experienced by VAT businesses using fully functional Making Tax Digital compatible software (Verian, 2024). The research involved qualitative and quantitative components and found evidence of businesses experiencing wider benefits of Making Tax Digital. For example, 42% of businesses reported some improvement in one of the wider operational or financial areas tested. Businesses that had experienced ‘a great deal of change’ since implementing Making Tax Digital were more likely to have experienced benefits of Making Tax Digital, as 64% of those reported some improvement in one of the wider operational or financial areas tested.
When developing the survey questionnaire, we worked with Verian to include a module of questions (see Appendix 2) exploring the time businesses currently spend on their ‘business’ finances and record keeping’ and how this has changed since the introduction of Making Tax Digital for VAT. The module of questions was adapted from questions in the COVID-19 Survey (Understanding Society, 2020-2021) which were used in a Bank of England analysis to estimate the productivity gains of working from home (Bank of England, 2021).
Our analysis uses this survey data to estimate the impact of Making Tax Digital on ‘business finances and record keeping’ for VAT businesses using fully functional Making Tax Digital compatible software.
The data source for this analysis was a telephone survey of 2,300 VAT registered businesses below and above the VAT threshold (£85,000 at the time of the survey). Businesses were in scope if they had signed up for Making Tax Digital prior to November 2021, had submitted at least one Making Tax Digital for VAT return in the previous 12 months, and were using fully functional Making Tax Digital software. Individuals taking part were the business owner or the person responsible for the business’ finances and tax affairs when it comes to VAT.
The November 2021 cut off means that respondents below the VAT threshold had joined Making Tax Digital voluntarily, before Making Tax Digital for VAT was mandated for them. We recognise that the experiences of these respondents may differ to those who did not join voluntarily. See Section 7 Limitations.
The dataset for this analysis only includes businesses who provided a full response to a module of questions on the time spent on ‘business finance and record keeping’ and who reported their current turnover. Where businesses reported over 12 hours per day spent on ‘business finances and record keeping’ this was treated as a non-valid response and these extreme values were excluded from the analysis.
In the research to assess the wider benefits of Making Tax Digital for VAT, Verian weighted the survey data to compensate for the sample design and ensure the survey sample was representative of the population so that inferences from findings were generalisable. We adjusted the weights to account for the most recent population estimates of VAT businesses and have utilised these weights throughout the analysis.
Using the business reported time spent on ‘business finances and record keeping’ after the introduction of Making Tax Digital and the assessment of how much more or less businesses get done these days compared to before Making Tax Digital, for each business we estimated the percentage change in time spent on ‘business finances and record keeping’ since Making Tax Digital and the annual change in hours. To calculate annual change, we assume there are 26 discrete 14-day periods in a year. For more information on how the estimated annual change in hours is distributed see Section 4 Time distribution.
The financial value of the change in time spent on ‘business finances and record keeping’ was estimated using hourly pay for occupations undertaking similar tasks, as a proxy for their market value. As the survey did not ask for hourly pay, we used median hourly pay (excluding overtime) from the Office for National Statistics Annual Survey of Hours and Earnings (ONS, 2024). We assumed larger businesses have more scope to delegate some ‘business finances and record keeping’ and so utilise a lower hourly cost. The wages used are in line with other published estimates of the impact of Making Tax Digital for VAT on businesses (HMRC, 2017) and (HMRC, 2021):
- businesses with annual turnover in 2022 to 2023 tax year below or equal to £10 million: £19.14 (ASHE occupation code 4141: office managers)
- businesses with annual turnover in 2022 to 2023 tax year above £10 million: £16.35 (ASHE occupation code 353: finance associate professionals)
For further exploration of the estimated financial value of time saved see Section 6 Interpretation.
The average percentage change in time spent on ‘business finances and record keeping’, average annual change in time in hours and average financial value of the time saved were calculated using the mean. Averages are presented for businesses that get more done since Making Tax Digital, businesses that get less done and all businesses regardless of whether they saved, lost, or did not experience a change time. The average across all businesses is used in the extrapolation to the population.
We extrapolated the averages to estimate the total savings made on ‘business finances and record keeping’ for the population of VAT businesses in Making Tax Digital for VAT using fully functional software in the 2022 to 2023 tax year. The estimates of total populations of Making Tax Digital VAT businesses below and above the VAT threshold comes from HMRC administrative data and is calculated as an average of the population over the year. The estimated proportion of businesses using fully functional software comes from research commissioned by HMRC to explore the impacts of Making Tax Digital for VAT businesses (IFF Research, 2021) and (Verian, 2025).
We present our findings as a range along with a central or point estimate. We have reasonable certainty that the actual value will fall in the range provided. For data where the distribution was continuous but did not mirror a normal distribution, we utilised bootstrapping to calculate the 95% confidence interval. We have reasonable certainty that, if the analysis was repeated many times, 95 out of 100 times the estimate will fall within the range provided. For results using banded data a certainty range was calculated utilising the minimum and maximum values of the band.
This estimate complements other published estimates of the administrative burden of Making Tax Digital (HMRC, 2017) and (HMRC, 2021). This is explored further in Section 6 Interpretation.
4. Time distribution
This section explores the distribution of the estimated annual change in hours spent on ‘business finances and record keeping’ per business, which is used to produce the estimates in this paper.
65% of businesses reported they get about the same amount done per hour when managing their ‘business’ finances and record keeping’, compared to before the introduction of mandatory digital record keeping via Making Tax Digital. 30% of businesses reported they get more done per hour since Making Tax Digital (saved time) and 5% get less done per hour since Making Tax Digital (lost time). The largest group experiencing a change reported getting more done.
Table 1: Change in time spent on ‘business finances and record keeping’
| Change in time since Making Tax Digital | Proportion of all businesses |
|---|---|
| Get more done | 30% |
| Get the same done | 65% |
| Get less done | 5% |
Table 2 shows the distribution of the estimated annual change in hours per business.
Table 2: Percentage of businesses by estimated annual change in hours (note1)
| Hours saved / lost per year | Proportion of all businesses |
|---|---|
| Saved over 250 | 5% |
| Saved 50 to 250 | 9% |
| Saved under 50 | 17% |
| No change | 65% |
| Lost under 50 | 3% |
| Lost 50 to 250 | 1% |
| Lost over 250 | 1% |
Note 1: Totals may not sum due to rounding.
More businesses saved time on their ‘business’ finances and record keeping’ than lost time. Where businesses experienced a change in time we estimate that for most this was a change of up to 50 hours per year (around 1 hour per week).
For businesses that experienced a change in time (excluding businesses that get the same amount done) the average change in time in hours shows a time saving, whichever measures of average are used. The median annual change in hours is 26 hours, the mode is 4 hours, and the mean is 96 hours per business per year.
Table 3 shows the average (mean) change in hours spent on ‘business finances and record keeping’ per business per year. This is shown by the change in time spent on ‘business finance and record keeping’ since the introduction of mandatory digital record keeping via Making Tax Digital. The table includes the average for ‘all businesses’ regardless of whether they get more done, get less done or get the same amount done. The 95% confidence interval shown illustrates the range for which we have reasonable certainty will contain the true average.
Table 3: Change in time spent on ‘business finances and record keeping’
| Change in time since Making Tax Digital | Average hours saved per business per year | 95% confidence interval |
|---|---|---|
| Get more done | 131 hours | 111 hours to 150 hours |
| Get the same done | 0 hours | 0 hours |
| Get less done | -113 hours | -65 hours to 161 hours |
| All businesses | 33 hours | 26 hours to 40 hours |
On average, we estimate that businesses that get more done saved between 111 hours and 150 hours per year, with a central estimate of 131 hours. Businesses that get less done lost between 65 hours and 161 hours per year, with a central estimate of 113 hours. When looking across all businesses at the average change in time spent on ‘business finances and record keeping’, businesses saved time with an estimated average saving of between 26 hours and 40 hours, and a central estimate of 33 hours saved per business year.
The analysis shows that businesses experienced a time saving since the introduction of mandatory digital record keeping.
5. Results
The averages presented in this section are calculated across all businesses who provided a full valid response to the module of questions, regardless of whether they saved time, lost time, or did not experience a change in time.
5.1 Change in time spent on ‘business’ finances and record keeping’
Below the turnover threshold
Estimates are based on responses from businesses with a taxable turnover below the VAT threshold (£85,000) who had signed up for Making Tax Digital prior to November 2021. This is before Making Tax Digital for VAT was made mandatory for this group in April 2022.
The averages (mean) presented are calculated across all businesses, regardless of whether they saved time, lost time, or did not experience a change in time.
On average, the change in time spent on ‘business finances and record keeping’ is estimated to be between an 0.2% increase in time and a 7.2% decrease in time. This range is calculated using banded data with a central estimate of a 4.3% decrease in time spent on ‘business finances and record keeping’ since the introduction of mandatory digital record keeping via Making Tax Digital.
Table 4 shows the average hours saved annually per business and the average financial value of time saved per business. The 95% confidence interval is shown which illustrates the range for which we have reasonable certainty will contain the true average.
Table 4: Results for businesses below the VAT threshold
| Businesses below the VAT threshold | Estimate per business per year | 95% confidence interval |
|---|---|---|
| Average hours saved | 20 hours | 11 hours to 29 hours |
| Average financial value of time saved | £382 | £201 to £563 |
On average, the time saved per business is estimated to be between 11 hours and 29 hours per business per year, with a central estimate of 20 hours saved per business per year.
The estimated financial value of this time saved is between £201 and £563 per business per year, with a central estimate of £382 per business per year.
Above the turnover threshold
Estimates are based on responses from businesses with a taxable turnover above the VAT threshold (£85,000) who had signed up for Making Tax Digital prior to November 2021. This is after Making Tax Digital for VAT was made mandatory for this group in April 2019.
The averages (mean) presented are calculated across all businesses, regardless of whether they saved time, lost time, or did not experience a change in time.
On average, the change in time spent on ‘business finances and record keeping’ is estimated to be between an 0.4% increase in time and an 8.7% decrease in time. This range is calculated using banded data with a central estimate of a 5.3% decrease in time spent on ‘business finances and record keeping’ since the introduction of mandatory digital record keeping via Making Tax Digital.
Table 5 shows the average hours saved annually per business and the average financial value of time saved per business. The 95% confidence interval shown illustrates the range for which we have reasonable certainty will contain the true average.
Table 5: Results for businesses above the VAT threshold
| Businesses above the VAT threshold | Estimate per business per year | 95% confidence interval |
|---|---|---|
| Average hours saved | 39 hours | 30 hours to 47 hours |
| Average financial value of time saved | £730 | £558 to £903 |
On average, the time saved per business is estimated to be between 30 hours and 47 hours per business per year, with a central estimate of 30 hours saved per business per year.
The estimated financial value of this time saved is between £558 and £903 per business per year, with a central estimate of £730 per business per year.
5.2 Extrapolating to the population
We assume the findings are representative of the populations of businesses under and above the VAT threshold. The averages are then extrapolated to the estimated population of all VAT businesses below and above the VAT threshold in Making Tax Digital for VAT using fully functional software in the 2022 to 2023 tax year. This excludes the population of businesses using bridging software.
Table 6 shows the estimated total annual time savings for the population of VAT businesses in Making Tax Digital for VAT using fully functional software.
Table 6: Time savings for the population of businesses using fully functional software
| Population | Average hours saved per business per year | Average number of businesses in 2022-23 using fully functional software | Total time saved in 2022-23 | 95% confidence interval |
|---|---|---|---|---|
| Below VAT threshold | 20 hours | 342,000 | 7 million hours | 4 million hours to 10 million hours |
| Above VAT threshold | 39 hours | 860,000 | 33 million hours | 26 million hours to 41 million hours |
| All VAT businesses | 33 hours | 1,202,000 | 40 million hours | 32 million hours to 49 million hours |
We estimate that in the 2022 to 2023 tax year between 32 million hours and 49 million hours were saved on ‘business finances and record keeping’ by all VAT businesses using fully functional software, with a central estimate of 40 million hours. We estimate that businesses below the VAT threshold made a saving of between 4 million hours and 10 million hours and businesses above the VAT threshold made a saving of between 26 million hours and 41 million hours.
Table 7 shows the estimated financial value of the time saved by VAT businesses in Making Tax Digital for VAT using fully functional software.
Table 7: Value of time saved for the population of businesses using fully functional software
| Population | Average financial value of time saved per business per year | Average number of businesses in 2022-23 using fully functional software | Total financial value of time saved in 2022-23 | 95% confidence interval |
|---|---|---|---|---|
| Below VAT threshold | £382 | 342,000 | £131 million | £69million to £193 million |
| Above VAT threshold | £730 | 860,000 | £628 million | £480 million to £776 million |
| All VAT businesses | £631 | 1,202,000 | £759 million | £603 million to £915 million |
In the 2022 to 2023 tax year, we estimate the total value of time saved on ‘business finances and record keeping’ by VAT businesses using fully functional software to be between £603 million and £915 million, with a central estimate of £759 million. We estimate that businesses below the VAT threshold made a saving of between £69 million and £193 million and businesses above the VAT threshold made a saving of between £480 million and £776 million.
6. Interpretation
The results of our analysis show that VAT businesses in Making Tax Digital using fully functional software save time on their ‘business finances and record keeping’ compared to before Making Tax Digital. The findings help to evidence the wider economic impact of Making Tax Digital and provide an indicator of productivity benefits.
The analysis complements the wider findings from the research to assess the wider benefits of Making Tax Digital for VAT (Verian, 2024). Overall, the research found a mixed experience of wider benefits and impacts that could be attributed to Making Tax Digital. Many businesses said there had been no impact. Where there was an impact, this tended to be positive rather than negative.
The wider benefits research found that businesses that had saved time using Making Tax Digital compatible software used this in a variety of ways: 66% increased productivity at work, 20% spent time with family and friends, 12% used it networking or building relationships, 10% pursued professional development and 4% used it for personal or recreation time. Almost all (90%) businesses that saved time and used that time to do other things placed value on the time saved.
In this paper we translate time savings into a financial value of the time saved. This is not necessarily a direct monetary saving for businesses but provides another way of valuing the benefit.
HMRC has previously produced the estimated administrative burden impacts of Making Tax Digital (HMRC, 2017). The administrative burden captures the additional costs and savings to businesses in meeting their tax obligations only and does not capture any wider impacts of Making Tax Digital. This includes businesses using fully functional and bridging software. These estimates were modelled largely using the more limited information available before Making Tax Digital was rolled out.
The savings presented in this paper utilise a different methodology to estimate the total time savings experienced by businesses in Making Tax Digital for VAT using fully functional software. Businesses were asked to think broadly about the time spent managing their ‘business’ finances and record keeping’. When prompted they were asked to consider any work on business finances including record keeping, creating and sending invoices and other similar things. The question was designed to capture the time spent on meeting tax obligations and wider impacts. Therefore, the value of time saved presented in this paper (between £603 million and £915 million) effectively incorporates some of the other published estimates and should not be viewed as an additional saving.
Due to differences in methodology and populations, the 2 estimates are not directly comparable. However, they suggest there is a substantial wider economic benefit of Making Tax Digital, beyond meeting HMRC tax obligations.
7. Limitations
Our estimate utilises responses from a survey of VAT businesses using fully functional Making Tax Digital software. Weightings were utilised to generalise findings from a sample to the VAT population using fully functional software. However, the analysis does not consider:
- any differences in experience due to the point of the Making Tax Digital journey businesses were in when responding to the survey. Some businesses were new to Making Tax Digital and in a transitional period. Others were established users of Making Tax Digital software
- how the experiences of respondents below the VAT threshold, who joined Making Tax Digital voluntarily, may differ to those mandated to join Making Tax Digital
- the extent to which businesses may have experienced these time savings without Making Tax Digital
We assume that the minutes spent on ‘business finances and record keeping’ within a 14-day period can be scaled to the year.
We do not know how businesses interpreted ‘business finances and record keeping’ and how this differed for each business.
The extrapolations are based on averages and there is uncertainty around these estimates.
8. Conclusions
The results of our analysis show a positive impact of Making Tax Digital. VAT businesses in Making Tax Digital using fully functional software saved time on their ‘business’ finances and record keeping’ compared to before Making Tax Digital.
On average, businesses above and below the VAT threshold saved time since Making Tax Digital was introduced, with the average time saving higher for businesses above the VAT threshold.
The financial value of the time saved is estimated to be between £603 million and £915 million in the 2022 to 2023 tax year across the total population of VAT businesses in Making Tax Digital using fully functional software. This estimate complements other published estimates of the administrative burden of Making Tax Digital and should not be viewed as an additional saving.
We conclude that Making Tax Digital generates savings for businesses using fully functional software, beyond any saving from requirements to meet tax obligations. The findings demonstrate the wider economic benefit of the software.
9. Appendix
9.1 Appendix: References
- Monetary Policy Report - November 2021 | Bank of England (Bank of England, 2021)
- Making Tax Digital for business - GOV.UK (HMRC, 2017)
- Extension of Making Tax Digital for VAT - GOV.UK (HMRC, 2021)
- Impact of Making Tax Digital for VAT - GOV.UK (IFF Research, 2021)
-
Earnings and hours worked, occupation by four-digit SOC: ASHE Table 14 - Office for National Statistics (ons.gov.uk) (ONS, 2024)
- The Office for National Statistics measures employee earnings using data from the Annual Survey of Hours and Earnings. Median hourly pay excluding overtime (£) is available by occupation. Source: 2022 Provisional Occupation SOC20 (4) Table 14.6a
- Questionnaires | Understanding Society (Understanding Society, 2020 – 2021)
- Assessing the wider benefits of Making Tax Digital for VAT - GOV.UK (Verian 2024)
- Impact of Making Tax Digital for below threshold VAT customers (Verian, 2025)
9.2 Appendix 2: Survey questions
Questions from Verian (previously Kantar Public) survey to assess the wider benefits of Making Tax Digital for VAT (Verian, 2024).
Ask all:
F1: In a typical 14-day period, how many days do you spend on your business’ finances and record keeping (for example, record keeping, creating and sending invoices)?
Response options: a) Number from 1 to 14, b) don’t know, c) refused
Ask all:
F2: How many minutes on average, do you spend on your business’ finances and record keeping on each day you complete tasks?
Response options: a) number from 1 to 720, b) more than 12 hours, c) don’t know, d) refused
Ask all:
F3: Thinking about how much you get done per hour when you manage your business’ finances and record keeping. Overall, how does this compare to how much you got done before the introduction of mandatory digital record keeping via Making Tax Digital?
Response options: a) I get much less done, b) I get a little less done, c) I get about the same done, d) I get a little more done, e) I get much more done, f) not applicable – I do not use my MTD compatible software for my business’ finances, g) don’t know, h) refused.
Ask if get more done (F3 = d, e):
F4: Thinking about how much more you get done these days, would you say that what you can do in an hour now with your Making Tax Digital software would previously have taken you…?
Response options: a) up to an hour and a quarter, b) between an hour and a quarter and an hour and a half, c) more than an hour and a half, d) don’t know, e) refused.
Ask if get less done (F3 = a, b):
F5: Thinking about how much less you get done these days, would you say that what you can do in an hour now with your Making Tax Digital software would previously have taken you…?
Response options: a) between 45 minutes and an hour, b) between 30 and 45 minutes, c) less than 30 minutes, d) don’t know, e) refused
Ask all:
F6: Overall, would you say that using Making Tax Digital software has saved your business time, compared to before the introduction of mandatory digital record keeping?
Response options: a) yes, b) no, c) don’t know, d) refused.