Resistance to Making Tax Digital proposals was surprisingly ‘limited’, but the responses from the research confirm that it will not be an ‘easy sell’.

The report noted: ‘The majority of businesses do not welcome what initially appears to be an increase in their tax related obligations and the disadvantages of Making Tax Digital are more immediately apparent than the potential benefits.’

It goes on to point out: ‘The quality and design of Making Tax Digital software/app is critical to acceptance. The design of the software/app has the potential to make or break the success of Making Tax Digital, such that it could function as a key enabler or a major barrier.’

Digital record keeping is seen as an unnecessary burden, and the prospect of paying tax more frequently was strongly resisted by many businesses. VAT registered businesses were unanimous in their desire to have VAT reporting dates and the new quarterly updating dates aligned.

Agents reported that they expected their workload to increase, they had concerns about the year-end process, the ability of some of their clients to manage quarterly digital updates and their ability to pass on increased costs to clients where the agent’s workload has increased.

For some, most notably PAYE/self assessment businesses, businesses in some sectors and businesses with fluctuating cash flow, ‘the barriers to engagement dominate and they struggle to see the benefits to them of Making Tax Digital’. The report suggested ‘these businesses will comply but with reluctance and some resentment’.

HMRC face a challenge in creating positive engagement and in persuading businesses that the initial effort of engaging with Making Tax Digital will reap rewards in the longer term.

Successful business engagement depended on the design of the digital record keeping software/app; the quality of the communications programme and narrative; the effectiveness of the guidance and support offered to businesses; and a well planned and executed launch.

The research survey was set up to explore small business and agent attitudes and engagement with Making Tax Digital and took place a year ago, in February 2016.

An independent research company sampled a range of business types, from those paying  the majority of their tax through PAYE but who also have secondary self-assessed income for £10,000 or more per annum, though to small businesses with turnover up to £10m per annum and up to 20 staff.

Nine sectors were included, which were selected by HMRC to be those likely to be harder to engage with Making Tax Digital, for example due to lower digital capability, seasonal/fluctuating income or fluctuating cash flow.  There was also a sub-sample of agents.

The survey took place well before HMRC released detailed consultation documents in the summer of 2016.

Making Tax Digital for Businesses: Exploring Small Business and Agent attitudes and engagement with Making Tax Digital is here.