1. Background and methodology

This research was designed to quantitatively measure the impact of Making Tax Digital for VAT on businesses below the VAT threshold. It explored the extent to which Making Tax Digital had met its key objectives of reducing the scope for error, making it easier for businesses to get their tax right, improving certainty and control, and supporting digital integration.

Verian conducted a survey with 2,042 businesses below the VAT threshold, using Computer Assisted Telephone Interviewing (CATI). Survey data was weighted to ensure it was representative of the VAT registered population in scope for the research.

2. Experiences of dealing with Making Tax Digital for VAT

The research sought to understand how businesses transitioned to Making Tax Digital, including their software choices, actions taken to prepare for Making Tax Digital and how easy they found the transitional process.

Prior to Making Tax Digital there was a fairly even split in businesses using software, spreadsheets or paper records to manage VAT administration. Since the introduction of Making Tax Digital, most businesses (54%) use fully functional software, but a significant proportion (26%) use bridging software.

Businesses tended to choose a software according to the needs of their business. Fully functional software users were more likely to choose software because they were already using it or their accountant recommended it, in contrast to bridging software users who were more likely to be motivated by price.

Accountants were key in helping businesses prepare for Making Tax Digital, as discussing changes with an accountant was the action that most businesses said they took in preparation and the action that was most useful.

Few businesses found Making Tax Digital transitional activities difficult. Most businesses said ongoing Making Tax Digital submissions were easy, suggesting that the transition to Making Tax Digital gets easier for users as they become more familiar with the process.

3. Minimising the scope for error

The research also sought to understand whether Making Tax Digital has reduced mistakes made by businesses on VAT record keeping, returns and more broadly the areas where Making Tax Digital has reduced the scope for error.

More than half of all businesses agreed that Making Tax Digital had reduced the potential for error both in record keeping and in submitting VAT returns.

Almost all businesses said they were confident that they were submitting VAT returns correctly, and whilst a majority of businesses said this had not changed since Making Tax Digital, 27% said that their confidence had improved, and just 7% said it had worsened since Making Tax Digital.

More than three-quarters of businesses (76%) said that Making Tax Digital had reduced the potential for error in at least one area of VAT.

4. Time saving as a result of Making Tax Digital for VAT

The research looked to see where businesses had saved time as a result of Making Tax Digital, and how the time saved has been spent.

Whilst most businesses said they spent the same amount of time on record keeping since Making Tax Digital as before, more than a quarter (28%) said they spent less time.

Four in ten businesses (40%) said they spent less time on VAT returns since Making Tax Digital, whilst 35% said they spent the same amount of time and 17% said they spent more time.

Half of all businesses (49%) said that Making Tax Digital had saved their business time overall, with most saying they used this time to increase productivity at work.

5. Impact on tax and financial confidence

The research looked to understand the impact of Making Tax Digital in relation to tax and financial confidence.

Businesses said that Making Tax Digital for VAT had improved their experience of dealing with VAT in a range of areas including preparing and submitting VAT information faster (59%), better managing tax affairs (48%) and the tax and day to day running of their organisation being better integrated (47%). Two-thirds (67%) of businesses agreed that it had improved in any one area.

Since Making Tax Digital, businesses reported that they feel more confident in submitting VAT returns, as well as using technology in their organisation and in understanding their organisation’s finances.

6. Costs associated with Making Tax Digital for VAT

The research aimed to understand the various costs experienced by businesses as part of the transition to Making Tax Digital, both time and financial costs, and whether these costs had been transitional or were ongoing.

More than half of businesses (58%) reported experiencing some kind of financial cost as a result of activities done in the transition to Making Tax Digital. The most common being the introduction of a new software package. Most financial costs experienced by businesses were stated as ongoing costs to the business rather than transitional.

Most businesses (72%) reported experiencing some kind of time cost as a result of activities done in the transition to Making Tax Digital. The most common time cost was discussing changes with an agent. Most time costs were stated as transitional costs to the business rather than ongoing.

7. Wider benefits of Making Tax Digital for VAT

The research sought to understand whether businesses had experienced any potential wider benefits of Making Tax Digital, including through the increased use of software.

Full software users saw additional benefits to their business from Making Tax Digital by using features of their software outside of submitting VAT returns, including automatic bank reconciliation, financial reporting and analysis and invoice generation.

More than half of all businesses (59%) saw an improvement in their business outside of VAT and tax as a result of implementing Making Tax Digital processes. The most common areas of improvement being improved time savings or productivity and organisation continuity (both 40%).

8. Perceptions of costs and benefits

The research looked at how businesses assess the cost of transitioning to Making Tax Digital compared with the benefits received. More businesses felt that the benefits of Making Tax Digital outweighed the costs than felt the costs of Making Tax Digital outweighed the benefits (41% compared with 23%).