Research: Impact of Making Tax Digital for VAT

HMRC have recently published research that explors the impact of record-keeping behaviour change in response to Making Tax Digital for VAT. The findings indicate that experiences of the costs and benefits varied considerably. 

Background

Making Tax Digital for VAT or Making VAT Digital (MVD) was introduced for VAT registered businesses with a turnover above the VAT threshold, and newly VAT registered businesses, for accounting periods commencing on or after 1 April 2019.

MVD requires VAT registered businesses to keep records digitally for VAT purposes.

Research findings

In the research now published, Kantar Public explored the ongoing impact of recording keeping behaviour change, in response to MVD, in its second year of mandation.  

The research was undertaken in the spring and summer of 2021 and involved 60 interviews with small businesses having fewer than 30 employees and an annual turnover of less than £10 million.

It was found that ongoing experiences of the costs and benefits of MVD varied considerably, reflecting variations in businesses’ financial requirements and receptiveness to change.

• Businesses with simple financial requirements felt they were unlikely to yield benefits from using fully compatible software.
• Businesses willing to embrace the change to MVD, and those worried about the change but felt able to adapt, reported benefits.
  • Those who opposed the change reported experiencing more costs.

Other key findings from the research were that:

• Businesses using bridging software, rather than fully compatible software, experienced minimal benefits as a result of MVD.
  • Such businesses tended to perceive that the time and financial costs of MVD outweighed the benefits.
  • Bridging software was acknowledged as being an acceptable compromise to retain the use of spreadsheets.
• Businesses using fully compatible software typically experienced ongoing benefits which outweighed the costs.
  • Benefits included time saved, increased VAT confidence and greater insight and financial control.

Useful guides on this topic

Making Tax Digital: VAT (subscriber guide)
What is Making Tax Digital (MTD) for VAT? What is VAT 'functional compatible' software? What do you need to report their VAT? Are there penalties for making mistakes?  

Penalties: Late Filing MTD
A points-based late submission penalty regime is replacing existing late submission penalties for VAT and Income Tax Self Assessment (ITSA) under Making Tax Digital.

Making Tax Digital for VAT: who is digitally excluded?
Who can claim exemption from Making Tax Digital for VAT?  What are the issues?

External link

HMRC: Qualitatively assessing the impact of Making Tax Digital