Making Tax Digital, the digitisation of VAT in April 2019 will immediately catalyse an annual benefit of £6.9bn, or £46bn over five years in net gains in turnover and growth for the UK economy. If all SMEs in the Manufacturing sector were catalysed by MTD, the sector would see an annual benefit of £1.1bn.
These are the major findings of The Productivity Pay-out: UK Small Businesses and the Digital Economy – a first of its kind economic model 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 so-called spill-over benefits.
These benefits will drive increases in productivity, for example by enabling better cash flow and human resources management, and freeing time for more productive activities such as sales, marketing or training.
According to the report, having adopted one form of digital technology, businesses tend to adopt others, in turn saving more time and reaping the rewards from cumulative productivity benefits from digital interoperability.
Despite the gains to be made from the adoption of digitisation of traditional business practices, one in five SMEs in Manufacturing are still unaware of MTD and its associated impact.
The impact for each type of small business in the UK is stark, with MTD delivering a spill-over productivity pay-out regardless of size. For sole traders, the predicted net gain in annual revenue is £1,900, whist a traditional small business with 10-49 employees will see an average increase of £18,000 to their top line growth. The average gain for businesses in the Manufacturing sector is the highest of all UK sectors at £8,100 per year.
Predicted increase in annual turnover (£) if all SMEs experience a catalyst to adopt all digital processes within financial management software. Source: Volterra Partners. Unregistered businesses are not registered with HMRC for VAT or PAYE. Sole traders are registered for VAT but not PAYE
With no further rollout of MTD beyond VAT-registered business, and no other action by government or industry, the model predicts SMEs across the UK will see a total productivity gain of £46bn over the next five years. If industry, government and SMEs work together to catalyse further growth of the ‘digital snowball’, the total productivity pay-out is predicted to be significantly higher at £57bn over the next five years.
Chris Evans, VP and UK country manager at Intuit QuickBooks said: “Now is the time for small businesses in the Manufacturing sector to embrace digital with unabated optimism. Today’s report highlights that a digital-led approach will be transformational for small businesses, who are the backbone of the UK economy.
“For those businesses, the transition to digital will not be without stumbling blocks. However, it presents a huge opportunity to streamline operations, drive efficiencies and simplify tax. It will enhance cashflow management and allow them to get paid faster and access capital to grow, powering prosperity across the UK.”