Making Tax Digital set to boost SME productivity
Britain’s push to digitise tax ahead of the Making Tax Digital (MTD) deadline is set to help close its productivity gap with countries like France and Germany, City PM understands.
According to Starling Bank, wider use of digital financial tools by SMEs could add £25.3bn to the economy, helping to narrow the UK’s productivity gap with European peers. But uptake is stalling just as quarterly reporting looms.
Small businesses account for 99 per cent of UK firms, yet spend an average of £63,000 a year managing their finances, according to a survey.
While 84 per cent already use some form of digital tool, nearly half say they do not expect to increase their use, citing entrenched processes and concerns about cost.
And where digital tools are used for invoicing and tax, SMEs report time savings of 41 per cent compared with manual processes, capacity that could otherwise be redirected towards growth and hiring.
Perception gap collides with MTD rollout
The research lands as the government’s delayed MTD programme edges closer to its biggest expansion.
From April, self-employed workers and landlords earning over £50,000 will be required to keep digital records and submit quarterly updates, replacing the traditional annual return.
Adeel Hyder, managing director of SME banking at Starling, said: “Small businesses are the backbone of the British economy, but they are being held back by a ‘hidden tax’ on their time”.
“Our research shows that a larger number of SMEs believe digital tax software alone costs nearly £12,000 a year, when in reality, that’s fifteen times the price of some high-end solutions”.
It seems the scramble is already underway, with HSBC UK launching a digital tax tool this month, built with embedded tech from Sage.
The bank claims the tool will help sole traders and landlords manage invoicing and quarterly submissions in their banking app.
Making Tax Digital has already cost taxpayers £850 since its launch in 2015, and the National Audit Office has repeatedly warned that the scheme has yet to demonstrate clear productivity gains for most businesses.
But Starling estimates that increasing digital adoption among SMEs could generate £10.4bn in additional tax receipts, based on the OBR’s tax-to-GDP ratio.
This is more than would be raised by raising the income tax rate by 1p.
Michelle Ovens OBE, founder of Small Business Britain, said: “The digital gap is not just about technology; it is about trust and community”.
“Small businesses are keen to adopt AI, but can be held back by barriers by lack of support, particularly for under-represented groups”.