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Small firms have mixed success with Making Tax Digital


Mark Say Managing Editor

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Small businesses have so far had mixed experiences in using the Making Tax Digital (MTD) service, depending largely on the overall compatibility of their software, according to new research.

HM Revenue and Customs (HMRC) has published the results of the research by Kantar Public, looking at how SMEs – with fewer than 30 employees and annual turnover of less than £10 million – have fared since those with turnovers above the VAT £85,000 threshold were required to keep digital records under MTD since 2019.

The document says their ongoing experiences of the costs and benefits have varied, depending on their financial requirements and receptiveness to change. Those with the most complex requirements have been more likely to benefit from using fully compliant software and those willing to embrace change or felt able to adapt had more positive experiences.

Businesses using fully compatible software have typically obtained benefits – such as reduced scope for error, times savings and more confidence in their returns – that outweigh the costs. But there has been a spectrum of views with some feeling neutral about costs and benefits and others believing the benefits may become apparent as business picks up with as the Covid-19 pandemic declines.

Complexity issue

Many, however, have felt the fully compatible software would be overly complex and expensive for simple requirements or as not as good as their bespoke systems. They have been using bridging software – which often enables the continued use of spreadsheets and bespoke legacy systems – and have generally experienced minimal benefits, according to the report.

Despite this, they have accepted that they have to comply with MTD for VAT and welcome the bridging software as an alternative.

“Acknowledging the different starting points of capability can help to overcome barriers such as financial and digital confidence, and emotional barriers such as anxieties about change,” the report says.

“Providing clarity over what the requirement is, and how different levels of capability are being accounted for could help reassure businesses, particularly those with very high entrenched processes.”

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