Impact of Making Tax Digital (MTD) for VAT — independent report published

23 September 2021| CATEGORIES: HMRC, Making Tax Digital| TAGS: Making Tax Digital, VAT, VAT News

An independent report has been published on the impact of MTD for VAT. HMRC commissioned the research to produce robust quantitative evidence on the impact of MTD across a range of metrics, including record-keeping behaviour, scope for error, costs of compliance, benefits to business and customer experience.

Background

Since April 2019, all VAT registered businesses with VAT taxable turnover above the VAT registration threshold (currently £85,000) have been required to keep records digitally and use software to submit their VAT returns.

MTD is key to achieving HMRC’s goal of building a trusted modern tax system, supporting the digitalisation of the UK and making it easier for businesses to get their tax right and keep track of their finances.

HMRC commissioned this research to gather evidence on the extent to which MTD for VAT is achieving its objectives. These objectives include:

• reducing scope for error
• making it easier for businesses to get their tax right
• improving certainty and control
• supporting digital integration
• understanding the extent of costs and benefits experienced by businesses as a result of their response to MTD for VAT
• understanding the extent of wider impacts of MTD for VAT on businesses
• understanding the factors most likely to lead to positive outcomes following MTD.

Report conclusions

The main findings in the report are as follows:

• Use of software that is fully compatible with Making Tax Digital was associated with experiencing benefits. Businesses using fully compatible software were more likely to report that: benefits outweighed costs, increased confidence in getting tax right, reduction in time spent checking submissions, and benefits that increase over time.
• Businesses that used paper or spreadsheets as their main method of record keeping (as opposed to software or apps) prior to Making Tax Digital were more likely to report costs associated with Making Tax Digital, and that the costs outweighed the benefits.
• The minority of businesses that reported they were not comfortable with technology were less likely to use fully compatible software, which may explain why they were also less likely to experience benefits from Making Tax Digital.
• The proportion of businesses using software and/or apps in record keeping has increased from 72% of businesses prior to the introduction of Making Tax Digital to 87% currently.
• The most common benefits reported were that Making Tax Digital made preparing and submitting VAT returns faster (55%), and that it made businesses feel more confident they are getting tax right (53%).

The full report, The Impact of Making Tax Digital for VAT report by IFF Research, is available here.

Extension of MTD for VAT

MTD for VAT will be mandatory for all VAT registered businesses from April 2022. This means that the rules will be extended to approximately 1.1 million VAT registered businesses with taxable turnover below the VAT threshold that are not currently required to operate MTD for their VAT reporting and record keeping obligations. The rules will apply from the first VAT period starting on or after 1 April 2022.