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Impact of Making Tax Digital on Businesses

Dr. M. Sadiq

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 revolutionize 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. The breakthroughs recorded in the information and communications technology have led to the introduction of an E-tax system. Making Tax Digital is an approach to make HMRC’s tax system the most advanced digital tax system in the world. This is credited for an appreciable improvement of the level of tax compliance, while simultaneously lowering the cost of tax administration. ‘Making Tax Digital’ leverages on the gains of E-tax and E-filing systems. Though this is still a work-in-progress, with many of its features needing further fine-tuning, it is increasingly gaining traction. 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. Therefore, this research is primarily deemed to be explanatory in nature and thus adopts a deductive strategy. Questionnaires and semi-structured interviews were employed to collect raw data from a sample of 202 taxpayers. The data was analysed statistically through descriptive statistics and inferential analysis using SPSS. In addition, to test the confidence levels of the respondents, a novel, valid and reliable tax instrument namely, Tax Marker Compliance Model was developed to measure the readiness of the UK public for making tax digital. 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.