HMRC’s qualitative research into the experiences and main considerations when choosing and using compatible software for Making Tax Digital (MTD).
HMRC commissioned Kantar Public to undertake qualitative research with businesses to understand the decision-making process around choosing MTD-compatible software, and the levels of satisfaction with that choice from those currently using software. HMRC says that insight from the research will inform its future guidance and support offer for businesses and support HMRC in ongoing collaboration with software developers and vendors. The research looked at:
- the steps involved in choosing MTD-compatible software;
- the key factors and features considered and prioritised by taxpayers;
- the information gaps that prevent businesses from choosing the software that better suits their needs;
- the main sources of dissatisfaction of customers with MTD-compatible software.
The research comprised 50 in-depth interviews and four focus groups with business taxpayers registered for VAT in the UK, currently affected by MTD rules.
Contextual note: This research was carried out in March and April 2022. At this time, MTD for Income Tax Self Assessment (MTD ITSA) was due to be introduced from April 2024 for self-employed individuals and landlords with a gross income of £10,000 and above.
On 19 December 2022, the Government announced a longer period for self-employed individuals and landlords to prepare for MTD. From April 2026, self-employed individuals and landlords with a gross income of more than £50,000 will be required to keep digital records and submit returns using MTD-compatible software. Those with a gross income of between £30,000 and up to £50,000 will be required to do so from April 2027.
And, following the phased approach, the Government will not extend MTD ITSA to general partnerships in 2025. It remains committed to introducing MTD ITSA to partnerships at a later date.
HMRC provides some information on the software available on GOV.UK. However, the feedback has shown that businesses expect more support from HMRC to help them choose the right product.
Participants faced a common set of challenges and information gaps across the process of selecting and using MTD-compatible software. The key challenges and information gaps highlighted by participants at each stage of the decision-making process included:
- confusion about the meaning and implications of MTD at the awareness stage;
- feeling overwhelmed when trying to filter software options;
- a lack of confidence in software choice;
- frustration, after using software, that they had made an inappropriate software choice for the needs of their business.
There were six main considerations that participants prioritised when selecting MTD-compatible software:
- cost, including upfront and ongoing costs of software and of time;
- ease of use; specifically, whether MTD-compatible software was easier or as easy as their current record keeping system;
- recommendations from agents and peers;
- features, including compatibility with existing systems and accessibility;
- security and reliability, including data security, customer support and updates;
- familiarity, including previous experience with software.
Ideally, participants wanted HMRC to provide some guidance on the types of software that might be best suited to a business of their size and type.
Participants also felt that information about the cost of different options could be improved. Some reported that they had looked at options listed as free-to-use which then turned out not be free at all. This created further confusion and frustration for some businesses that were already overwhelmed by choice.
MTD rules require businesses to keep records digitally and submit tax returns from those records using MTD-compatible software. It may come as a surprise to some taxpayers that HMRC does not, and will not, provide this software.
Also, don’t forget, the basis year change starts with a transitional year in 2023/24. This is seen as a necessary precursor to MTD ITSA. Please see our earlier Bulletin.
Whether there is enough awareness of that reform would also be interesting to know, given that it covers a similar target taxpayer population.
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