A report commissioned by HM Revenue & Customs (HMRC) to find out why 16 per cent of businesses have failed to comply with Making Tax Digital (MTD) for VAT more than a year after the rules came into effect has been published.

The IPSO Mori research found that a “lack of knowledge, information and skills were frequent barriers to MTD compliance” but notes that “the vast majority of businesses involved in the research were keen to comply with MTD for VAT”.

Since April 2019, most businesses with a taxable turnover of £85,000 or more have been required to keep digital records and make quarterly submissions using HMRC compatible software.

The researchers conducted 44 telephone interviews with businesses that were not yet MTD-compliant to find out the reasons why have not complied and to find out how businesses in this position can be encouraged to become compliant.

They found that “overall businesses lacked a clear understanding of [the] purpose and rationale driving MTD for VAT and were unaware of any potential benefits to them or HMRC”.

The report goes on to recommend that “having a better understanding and awareness of the drive and reasons behind MTD for VAT has the potential to increase motivation amongst non-compliant businesses to sign up to and comply with MTD”.

The language used by HMRC around MTD for VAT also attracted criticism from the researchers, who said that the use of words like ‘might’ or ‘may’ “does not resonate with businesses”. Instead, they say “the use of language across all messages and communications needs to be more direct and definitive to avoid confusion and mitigate the risk of businesses not taking the messages seriously enough or ignoring the messages altogether.”