Filing VAT returns online could trigger £6.9bn productivity windfall

Medium-sized businesses could add £41,000 in turnover in year one by adopting digital tech, says accounting software vendor

The government’s Making Tax Digital initiative, requiring all businesses with turnover over £85,000 to file VAT returns online, could trigger an immediate £6.9 billion pay-out in national productivity, say researchers.

Small businesses with under 50 employees will add another £18,000 in turnover by adopting MTD in year one.

Medium-sized businesses will see their turnover increase by £41,000 in the same period.

Around 1 million businesses are affected by the change, which comes into effect on April 1.

Looking further ahead, businesses embracing wider digital technology – spurred on by HMRC’s digital push – could create total £57 billion productivity pay-out nationally over five years, say researchers.

According to a new report sponsored by accounting software provider Intuit Quickbooks, Making Tax Digital will enable staff to spend their time more usefully, freeing time for more productive activities such as sales, marketing and training.

Having adopted one form of digital technology, businesses tend to adopt others, in turn saving more time and reaping the rewards of cumulative productivity benefits from digital interoperability, says report author Volterra Partners. MTD creates a “digital snowball” as businesses look to adopt further digital behaviours and technologies.

London and the South East will benefit the most by adopting MTD.

London sees the highest average regional potential benefit per business of £5,700 per year, while the South East sees almost as much with £5,300 per year.

The wholesale and retail trade, construction, professional and manufacturing are the sectors that will see the biggest impact from productivity growth.

Manufacturing sees the highest average potential benefit per business at £8,000 per year, with retail seeing almost as much with £7,500 per year.

However, just 4 per cent of businesses have signed up for Making Tax Digital so far.

And one third of businesses have either not prepared for MTD or are unaware of its introduction.

The Federation of Small Businesses predicts that Making Tax Digital could cost businesses almost £3,000 a year. (HMRC puts the cost at much lower, just £43 a year plus a one-off transition cost of £109.)

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