Making Tax Digital has arrived – and in the next five years, it could bring about a £57bn gain for businesses due to the extra productivity it will bring about.
That is a finding from an independent report commissioned by QuickBooks and carried out by Volterra Partners, an independent economic consultancy.
The Productivity Payout: UK Small Businesses and the Digital Economy report includes an economic model which suggests there will be a first year £6.9bn benefit to Making Tax Digital.
Then that should snowball, as businesses who start on the digital journey begin to adopt digital tools in other areas of their business, the report found.
“We found the results to be pretty astounding,” QuickBooks’ UK vice president Chris Evans told Accountancy Age. “When you look at Making Tax Digital, there are a million small businesses that need to start filing. There are around 625,000 that don’t use any kind of software – so they are using Excel, for example. This shows that with that one million moving to digital, it will potentially remove other barriers.”
The economic model was built on predicted behaviours of small business owners as a result of social and financial drivers.
It demonstrates that once businesses integrate technology to become MTD compliant, a ‘digital snowball’ effect is likely to occur, as they experience efficiency benefits of going digital. It paints a positive picture of the medium term after the implementation of MTD, viewed by many in the context of compliance rather than as regulation which would bring its own productivity benefits.
Lack of awareness
Despite this, and the April 1 deadline for VAT-registered firms which has just passed for those earning more than £85,000, many SMEs still have their heads in the sand.
Another piece of independent research commissioned by QuickBooks in February found as many as one in five small businesses were unaware of MTD and its associated impact. The need to increase awareness is clear.
“We’ve worked with accounting professionals, driving education through them, making sure they have the right tools, doing webinars, and raising awareness through our TV campaigns, for example. The training element is very important, as you have to acknowledge it is a big change,” Evans said.
And once they have got used to this change, the report shows the benefits are clear. For sole traders, it could be as much as £1,900 in net gain every year, while a traditional small business with 10-49 employees can see an average increase of £18,000 to their top line growth.
Evans said that far from their software taking the place of the accountant, QuickBooks is keen to encourage SMEs to hire them.
“A key stat for us is that 89% of small businesses are more successful with an accounting professional, so our goal is to connect the two together,” he said. “We want to really drive, with digital adoption, efficiency for both the small business and the accounting professional.”
These gains will be even more critical as the UK heads towards Brexit, whenever that may be, and the need to remain competitive and growth-focused is arguably more important than ever.
There is a lot of uncertainty around Brexit. Any time there is uncertainty, the biggest problem we can solve is around cash flow. When you link this to productivity gains that digitisation can drive, it is worth £57bn in five years, and that is significant to the UK economy,” Evans said, while stressing that the two things must be treated separately.
There are a few conditions on reaching the £57bn productivity payout in the next five years. These are the continued rollout of MTD to other taxes – recently delayed by HMRC to 2021 at the earliest – and the integration of Open Banking into financial management software. SMEs will also need to collaborate with the software industry on training and support.
While stumbling blocks are to be expected, one thing seems certain – the move towards digitisation is inevitable. That can be linked to the way we already use technology in our daily and business lives, Evans said, a process which will only accelerate in the future.
“There will be more freelancers – 50% self-employed by 2020, where you will see the merging of your personal and business life together. 85% of people now use smartphones, and 30% of businesses use it as a primary device to run their business from,” he said.
“Small businesses use on average 10-15 apps to run their business, which is huge. They don’t necessarily talk to each other, so it is making sure that it is integrated. We see QuickBooks being the platform to bring that all together. “
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