Impact of making tax digital on small businesses

Abstract

Making Tax Digital (MTD), an initiative announced in 2015 by MP George Osborne in his autumn statement, brings with it the most impactful change to the UK tax administration for a generation. The Making Tax Digital vision aims to revolutionise the way businesses, landlords, individuals, and tax accountants interact with Her Majesty's Revenue and Customs (HMRC). Making Tax Digital is intended to aid the government's tax simplification agenda, which commits to making the UK tax system fully digitalised. Given this background, this research aims to examine the impact of making tax digital. This research has used a combination of primary quantitative and qualitative data that is triangulated across taxpayers, accountants and interdisciplinary practitioners. Questionnaires and semi-structured interviews were employed to collect raw data from a sample of 202 taxpayers, 20 accounting and 4 interdisciplinary practitioners. A particular need identified is for support and clearer guidance on compliance for the 3.5 million sole trader businesses which generate £1.9 trillion of wealth for the United Kingdom. This has to be backed by a strong anti-avoidance business support system for sole proprietary businesses to enable then to adapt to new way of reporting and paying taxes. It is further recommended that HMRC develops a strong communication strategy that encourages and helps sole trader overcome challenges of Making Tax Digital.