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Small businesses stand to gain £6.9bn from Making Tax Digital due to productivity boost

SMEs could make annual gains of £6.9bn as part of the Making Tax Digital benefits, according to a new report by Volterra Partners and Intuit QuickBooks - but low uptake of the trial has raised questions about its viability

A £57m windfall for small businesses is one of the major benefits of the new Making Tax Digital scheme, according to a report that predicts a huge boost in productivity.

 

What is Making Tax Digital and what are its benefits?

The UK government initiative to digitise company VAT returns will affect more than a million businesses when it is introduced on 1 April 2019.

A new study, titled The Productivity Payout: UK Small Businesses and the Digital Economy, claims that once businesses have made the transition to the new system for filing VAT returns, a “digital snowball effect” could bring spill-over benefits in productivity.

It is hoped that, once business owners become comfortable with the process, Making Tax Digital will reduce the amount of paperwork they need to complete.

The economic model, compiled by economic consultancy Volterra Partners and cloud accounting software company QuickBooks, predicted that net gains in productivity following the first year of Making Tax Digital could total £6.9bn.

Breaking the benefits down, a business with between ten and 49 employees was predicted to receive an average increase of £18,000 to its turnover, while a medium-sized business with 50 to 250 staff members could be expected to make an additional £41,100.

Andrew Chamberlain, deputy director of policy and external affairs at the Association of Independent Professionals and Self-Employed, said: “This report sets out a clear and positive view on the benefits that digitisation can bring, not just to self-employed businesses, but to the economy as a whole.

“But there are challenges too. The roll-out of Making Tax Digital must be carefully handled to ensure businesses can transition to digital systems over a sensible time frame and with considerable support from both government and industry.”

 

Are small businesses ready for Making Tax Digital?

Despite the perceived benefits of digital tax returns, many businesses remain unprepared for its introduction in five weeks’ time.

The latest figures released by HMRC revealed that only 4% of companies invited to trial the system had done so.

According to the government poll, only 7% reported they had already signed up to Making Tax Digital.

Theresa Middleton, director of the Making Tax Digital for Business programme, said: “There is no change to what information is provided through Making Tax Digital, just how it is recorded, generated and provided.

“We want to help businesses be ready for the changes which kick in for VAT periods, which start on or after 1 April.

“We’ll have written to every business required to join this year by the end of February, but even back in December, over 80% of them were aware of the changes they need to make and the vast majority of those are already preparing.

“More than 16,500 businesses have already signed up to do their VAT digitally.”