MTD will lead to £57bn productivity payout

A new report has laid out a digital roadmap that could potentially create a £57bn productivity payout for UK SMEs over five years through Making Tax Digital (MTD).

MTD, the digitisation of VAT in April 2019, will create an annual benefit of £6.9bn, or £46bn over five years, in net gains in turnover and growth for the UK economy. These are the findings of The Productivity Payout: UK Small Businesses and the Digital Economy by Volterra Partners in association with Intuit QuickBooks.

This new economic model – built on predicted behaviours of small business owners as a result of social and financial drivers – predicts 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 spill-over benefits will drive increases in SMEs’ levels of productivity, for example by better enabling better cash flow and human resources management, and freeing time for more productive activities such as sales, marketing or training.

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 huge gains to be made from the adoption of digitisation of traditional business practices, independent research by QuickBooks reveals that roughly one in five SMEs are still unaware of MTD and its associated impact.

The research shows the impact for each type of small business in the UK is stark, with MTD delivering a spill-over productivity payout regardless of size. For sole traders, the predicted average net gain in annual revenue is £1,900, whist a traditional small business with 10-49 employees should see an average increase of £18,000 to their top line growth.

With no further rollout of MTD beyond VAT-registered business, and no other action by government or industry, the model predicts SMEs will see a total productivity gain of £46bn over the next five years. If industry, Government and SMEs themselves work together to catalyse further growth of the ‘digital snowball’, the total productivity payout 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 to embrace digital with unabated optimism. This 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 cash flow management and allow them to get paid faster and access capital to grow, powering prosperity across the UK.”