Research prepared for HMRC on the 'Impact of Making Tax Digital for VAT' reveals a mixed picture regarding the benefits that Making Tax Digital (MTD) for VAT can offer businesses. It seems that if you really want to ensure accuracy in your VAT reporting you need to engage an accountant and use fully functional software.
The research, published in July 2021, considered the impacts, costs and benefits of MTD for VAT. Essentially, was it worth it? Has it reduced the scope for error? What will lead to positive outcomes?
Data was gathered by independent researchers during the lockdown in 2020 from a sample of 2,005 interviews with businesses that had submitted a VAT return via Making Tax Digital for VAT. The sample was ‘boosted’ to gather more information from medium-sized businesses and later adjusted and re-weighted.
The resultant data gathered gives some intriguing results and shows that small self-employed businesses that lack tax agent support obviously have very different needs to other businesses.
The business surveyed were divided as to whether MTD has increased its confidence in getting their taxes right.
70% of the business are using tax agents, and the use of agents increased by the self-employed due to MTD for VAT.
70% of the business use fully functional software, as opposed to say a spreadsheet with bridging software.
Only a third of the business (31%) reported spending less time on their returns
- Two-thirds of businesses thought that the result of MTD saved them time in checking for errors, inputting data and calculation of tax. Just 3% thought that this improved their accounting time.
- Of those who thought that MTD for VAT had not helped reduce the potential for mistakes. Businesses that were most likely to fall into this category were businesses not using an external agent (31%), businesses that had not incurred ongoing or transactional costs to ensure Making Tax Digital compliance (34%, in both cases), as well as businesses using bridging software that links to spreadsheets (47%) or apps (51%) and those that were uncomfortable with digital change (43%).
Only 14% thought that they had saved anytime over the actual submission of their returns: this is unsurprising as the old system was so simple.
It is very difficult to discern from the data provided the cost to business of the new system.
- 65% of the businesses discussed the changes with an accountant or bookkeeper.
- Just over half (55%) reported costs associated with getting ready for Making Tax Digital; the most significant being the introduction of a new accounting software package, mentioned by 26% of businesses. However, a similar proportion (24%) highlighted costs associated with discussions they had with an accountant or bookkeeper or increased use of a bookkeeper or agent (16%).
- Organisations with turnovers between £85,001 and £1 million, compared with those with a turnover of more than £5 million, consulted more with bookkeepers or agents. Businesses with turnovers of more than £5 million were less likely to either discuss the changes with an accountant/bookkeeper.
Comment
For some odd reason the research is buried in the Paying HMRC section of HMRC's website, there is a link below.
Topical guides
Making VAT Digital Zone
Our guides to Making Tax Digital for VAT, including guides to functional compatible software.
VAT penalties
What penalties apply if you are unable to file your VAT return, you make a mistake, or you pay late?
Making Tax Digital Zone
What's next? Reporting changes for Self Assessment and Corporation Tax.
External link
Research Impact of Making Tax Digital for VAT
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