On 9 June 2022 HMRC published the results of a survey they commissioned to look at business awareness of Making Tax Digital (MTD). The research focused on VAT registered businesses that are below the threshold for VAT registration.

MTD would require most businesses to submit returns electronically using accounting software that is compatible with HMRC’s systems. MTD for VAT came into effect from 1 April 2019, requiring businesses with taxable turnover above the GBP 85,000 threshold to submit their VAT returns via MTD compatible software and keep the relevant records digitally.

From April 2022 MTD for VAT has been extended to cover all VAT-registered businesses, including those below the VAT registration threshold.

The research investigated the levels of awareness of MTD and its requirements by those VAT registered businesses below the VAT threshold that were not yet signed up to MTD. The aim of the research was to help HMRC in its approach to businesses that must take action to comply with MTD with effect from April 2022.

Awareness of MTD

The research found that there were high levels of awareness of MTD, but more than a quarter of the businesses surveyed considered incorrectly that the MTD requirements did not apply to their business.

In the second wave of questioning that took place between December 2021 and January 2022 around 36% of businesses reported they had already signed up for Making Tax Digital, however of these only 26% had linked their record-keeping software with HMRC. This would suggest that some businesses were confused about the specific requirements of full compliance with MTD.

Although the general awareness of MTD was high, there was less understanding of the specific requirements and only 51% of the businesses that were aware of MTD could recall at least one of the requirements.

Record-keeping

Of the businesses surveyed, 75% were using digital methods as the main method of record-keeping and 20% still used paper as their main method. The results of the survey indicated that businesses using paper methods were less likely to understand the requirements of MTD and could therefore be less prepared.

Around 19% of the businesses were relying on their tax agent or accountant to advise them on preparing for MTD, and 15% suggested that their tax agent or accountant was an important source of their awareness of MTD.

Preparedness for MTD

Around 32% of businesses reported that they planned to take action before or during April 2022, and a further 7% said they planned to do so after April 2022. Of the business surveyed, 37% were either waiting on others such as their agents to advise them; or could not say when they would take further preparatory action for MTD.

Receiving a letter from HMRC was an important source of awareness of MTD and 28% of the businesses surveyed remembered receiving an HMRC letter. Those businesses generally displayed a slightly more rounded awareness of the MTD requirements, so the letters may have helped to promote a better general understanding of MTD.

In the second wave of questioning 46% of businesses suggested they did not see any benefits from MTD. The benefits most commonly recognised were better use of agent time and the ability to access records at any time and from anywhere. Around 33% of the businesses did not anticipate any barriers to implementation of MTD, though they were concerned about the costs and compliance time involved in becoming accustomed to MTD compatible software.