Research and analysis

Research to explore the customer decision-making process of choosing compatible software for Making Tax Digital

Updated 6 July 2023

Qualitative research with businesses.

HM Revenue and Customs (HMRC) Research Report (682)

Research was conducted by Kantar Public between March and April 2022, the findings in this report reflect the attitudes of participants at the time it was conducted. Prepared by Kantar Public (Alice Coulter, Milo Warby, and Katrina Leary).

Disclaimer: The views in this report are the authors’ own and do not necessarily reflect those of HMRC.

1. Glossary of terms

Making Tax Digital (MTD)

MTD is the first phase of HMRC’s 10-year strategy to become a modern, digital tax service.

MTD for VAT was first introduced in April 2019. VAT-registered businesses in the service are required to keep records in digital form and file their VAT returns directly from their records using third party software.

Initially, only businesses with taxable turnover above the VAT registration threshold were required to use the service. However, from April 2022, VAT-registered businesses below the threshold have also been required to comply. Businesses join MTD in staggers reflecting the staging of the tax year across these different businesses.

Application Programming Interface (API) platform

An API is a set of definitions and protocols for building and integrating application software. An API platform allows different APIs to work together. In the case of MTD, this is the mechanism by which data flows between third party software and HMRC systems.

Bridging software

Bridging software is an additional program that extracts data from another piece of software (such as a spreadsheet or legacy software) in a format that enables the VAT return data to be submitted to HMRC via an API. It does not deal with any of the other requirements of MTD for VAT such as digital record-keeping.

Full software

Term used in this report to refer to accounting software which includes a package of features beyond VAT submission; for example, billing and invoicing, payroll management, or enterprise resource planning.

MTD for VAT compatible accounting software

Software products which are designed to meet MTD for VAT requirements for digital record-keeping and submission to the MTD API.

VAT ‘Overs’

Businesses with annual taxable income above the VAT registration threshold of £85,000, required to comply with MTD rules since April 2019.

VAT ‘Unders’

VAT-registered businesses with annual taxable income under the VAT registration threshold of £85,000, required to comply with MTD rules from April 2022 onwards. Some of these businesses began using MTD before April 2022 on a voluntary basis.

MTD for ITSA

MTD for Income Tax Self Assessment (ITSA) will apply to self-employed individuals and landlords from April 2024, if their total gross income from self-employment and/or property exceeds £10,000 in a tax year.

2. Executive summary

Making Tax Digital (MTD) is a key component of HM Revenue and Custom’s (HMRC) strategy to be a trusted and modern tax administration. MTD rules require businesses to keep records digitally and submit tax returns from those records using MTD-compatible software.

HMRC does not provide this software, and the software a business chooses is a commercial decision. HMRC provides some information on the software available on GOV.UK. However, feedback has shown that businesses expect more support from HMRC to help them choose the right product.

HMRC commissioned Kantar Public to undertake qualitative research with businesses to understand the decision-making process around choosing MTD-compatible software, and the levels of satisfaction with that choice from those currently using software. Insight from the research will inform the future guidance and support offer for businesses and support HMRC in ongoing collaboration with software developers and vendors.

The research involved 50 in-depth interviews and 4 focus groups. Participants were split across 2 different groups of businesses: those with annual turnover over the VAT threshold of £85,000 (‘Overs’) and those under the threshold (‘Unders’).

2.1 Key findings

Participants’ experiences of the steps in selecting MTD-compatible software varied according to their individual circumstances and capabilities. The participants we spoke to varied significantly in their levels of financial and digital capability and confidence, as well as their current business context and the presence of external pressures.

These differences had an impact on levels of preparedness for adopting MTD-compatible software and experience of the steps of the process to selecting and using this software.

Participants faced a common set of challenges and information gaps across the process of selecting and using MTD-compatible software. The key challenges and information gaps highlighted by participants at each stage of the decision-making process included:

• confusion about the meaning and implications of MTD at the awareness stage
• feeling overwhelmed when trying to filter software options
• a lack of confidence in software choice
• frustration, after using software, that they had made an inappropriate software choice for the needs of their business

There were 6 main considerations that participants prioritised when selecting MTD-compatible software:

1. cost, including upfront and ongoing costs of software and of time
2. ease of use; specifically, whether MTD-compatible software was easier or as easy as their current record keeping system
3. recommendations from agents and peers
4. features, including compatibility with existing systems and accessibility
5. security and reliability, including data security, customer support and updates
6. familiarity, including previous experience with software

When considering the cost of software, there are key differences to be aware of in how participants viewed and prioritised this factor. What constituted a reasonable cost was driven by the perceived value participants identified from using software. Participants who saw no possible benefits to their business from using new software regarded any cost as too much. In contrast, those open to paying for software balanced cost against the potential benefits software could offer their business.

Participants identified key points across the process of selecting MTD-compatible software where HMRC could support businesses. These included:

• helping businesses engage with the change when they are made aware of MTD or what they need to do
• helping businesses identify their software needs and filter options to meet those needs
• helping businesses be able to make a more confident choice; for example, through free trials, reassurances, or useful information
• helping businesses understand how to submit VAT returns using MTD software and make the most of MTD-compatible software through usage

3. Introduction

3.1 Background and objectives

Making Tax Digital (MTD) is the first phase of HM Revenue and Customs’ (HMRC) 10-year Tax Administration Strategy to build a trusted and modern tax administration. MTD rules mean businesses must keep records digitally and submit VAT returns using MTD-compatible software via HMRC’s Application Programming Interface (API) platform.

MTD aims to improve business record keeping practices by using software to reduce the scope for error and make record keeping easier for the customer, helping to reduce the tax gap. The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid.

VAT-registered businesses with a taxable turnover above the VAT registration threshold (currently £85,000) have been required to follow the MTD rules by keeping digital records and using software to submit their VAT returns since April 2019. VAT-registered businesses with a taxable turnover below the VAT threshold have been required to follow MTD rules from April 2022.

Self-employed individuals and landlords with annual business or property income above £10,000 will be required to follow MTD rules for their Income Tax Self-Assessment (ITSA) from April 2024. General partnerships will also need to join MTD for ITSA from April 2025.

Businesses have two main ways to meet their obligations: using ‘Fully-compatible Software’ that keeps records and prepares and submits returns to HMRC via API; or using ‘Bridging Software’ that only submits returns to HMRC via API linking to other software that records and preserves digital records, such as spreadsheets.

This research sought to understand the key factors determining business’ software choices for MTD and information and support required. This insight is required to inform the future guidance and support offer for businesses.

By supporting customers in their software choice, HMRC hopes customers will make better informed decisions and maximise their opportunity to benefit from MTD. Understanding customers’ software needs will also support HMRC in ongoing collaboration with software developers and vendors.

3.2 Aims of this research

The aim of this research was to understand the decision-making process of businesses when choosing MTD-compatible software and their level of satisfaction with that choice. 

There were 6 core objectives:

1. understand the steps involved in the choice of MTD-compatible software and their timing
2. identify the key factors and features considered and prioritised by taxpayers when choosing MTD-compatible software, including the role of tax agents
3. understand the minimum requirements of different groups of taxpayers (by sector, firm size, and other relevant characteristics) regarding MTD-compatible software
4. identify current information gaps that prevent businesses from choosing the software that better suits their needs
5. understand the main sources of dissatisfaction of customers with MTD-compatible software
6. identify the steps in the decision process where businesses require more support from HMRC

3.3 Methodology and sample

The study involved 2 stages of qualitative research to explore the decision-making process businesses took when selecting MTD-compatible software.

The first stage involved 50 depth interviews with VAT-registered businesses to explore their decision-making process of selecting MTD-compatible software and their level of satisfaction with that choice.

The interviews were split across 2 different groups of businesses:

1. those with annual turnover over the VAT threshold of £85,000 (‘Overs’)
2. those with annual turnover under the VAT threshold (‘Unders’)

The aim of this distinction was to speak to a mixture of those with experience of using MTD for VAT, and those at an earlier stage in the process. The ‘Overs’ were mandated to use MTD for VAT from April 2019 whereas the ‘Unders’ were required to do so from April 2022. However, ‘Unders’ could voluntarily join MTD before this date.

The second stage involved 4 focus groups (4-6 participants per group) with VAT-registered businesses to validate the findings from the in-depth interviews and co-create solutions.

Focus group participants were recruited from those who had already completed an in-depth interview. Groups were split between ‘Unders’ and ‘Overs’ (and therefore at different stages of selecting and using MTD-compatible software).

In addition to the split between businesses already using or due to use MTD for VAT, participants in this research included:

• a mix of greater or lesser involvement by agents in the businesses’ software choice (either actual or anticipated)
• a mix, among those ‘Overs’ using software, of software complexity and cost
• a mix of financial or digital confidence within the audience
• a spread of sole traders, partnerships, and limited companies
• a range of turnovers and business lifecycle phase (growth, maintain or wind down)
• a spread of industry sectors
• a spread of staggers across the ‘Under’ audience (month due to join MTD)

A full sample breakdown is included within Appendix 1.

Interviews and focus groups were conducted online via Zoom or telephone where preferred by the participant. 11 interviews were conducted over Zoom and 39 by telephone. Interviews lasted 45 to 60 minutes, and groups lasted 90 minutes. Fieldwork took place between 21 March and 29 April 2022 and was conducted with the relevant individual within each business with responsibility for tax compliance.

Participants were recruited from a randomly drawn sample of businesses mandated to use MTD for VAT provided by HMRC. All businesses within the sample received a letter explaining the purpose of the research and giving them the option to opt out.

The research project was qualitative in nature. Qualitative research is primarily exploratory, used to gain an understanding of underlying reasons, opinions, and motivations. Due to the sampling limitations of qualitative research, findings cannot be used to generalise across the population.

4. The process of selecting and using MTD-compatible software

This section sets out the common steps in businesses’ process of researching, choosing, and using MTD-compatible software. It also identifies key differences in experiences by capability and business type.

4.1 Businesses’ starting points for MTD for VAT

The research engaged with two different groups of VAT-registered businesses. The first group had annual turnover over the VAT threshold of £85,000 and therefore were already using MTD for VAT (‘Overs’). The second group were under the threshold and due to join from April 2022 (‘Unders’). As noted previously, some of this group had voluntarily started to use MTD-compatible software.

Among the participants spoken to, ability to get started with selecting MTD-compatible software was typically determined by their perceived capability, rather than the turnover of their business.

There were 4 areas with the greatest impact on participants’ perceived capability to engage with MTD for VAT. These were the same as those observed in previous research [1] [2] for HMRC on the topic of MTD:

1. digital confidence / comfort: the more digitally confident and experienced the participants were, the stronger their ability to adapt to MTD for VAT
2. financial confidence: participants who had confidence in how they managed their financial requirements tended to be confident they would have the capability to adapt to a new approach
3. general attitudes to change and risk: those who disliked or were afraid of change tended to doubt their own capabilities and be more resistant
4. VAT complexity: the more straightforward a business’s VAT affairs, the higher the participant’s perception of capability and ability to adapt to new processes

The clearest indicators of the ease or difficulty of participants’ MTD decision-making experiences were their levels of digital and financial confidence. This informs 4 broad typologies of participant that will be revisited through this report to illustrate key differences in experience. These are (participants with):

1. low digital confidence and low financial confidence
2. low digital confidence and high financial confidence
3. high digital confidence and low financial confidence
4. high digital confidence and high financial confidence

Beyond individual capability, there were a range of other factors that dictated participants’ experiences. These factors determined starting points when it came to engaging with MTD for VAT, as well as the ease of and time spent on the process.

The most important of these was access to expert advice or recommendations. For example, participants with access to or ability to pay for an agent’s advice were better equipped than others for the process of choosing MTD-compatible software.

This was also the case for those who knew friends or professionals able to guide or make suggestions. Previous experience with software, working across a range of different businesses, or receiving training in digital accounting also helped.

Those with time-consuming competing priorities were much more likely to be further behind in getting started with the process. For example, participants could be managing a rapid period of business growth or responding to the effects of the Covid-19 pandemic.

Some participants were also sensitive to the idea of sharing their data online with a third party. Before researching options, these participants were already sceptical and resistant to using MTD for VAT compatible accounting software.

4.2 Steps in the process of selecting and using MTD-compatible software

There were 4 broad steps that businesses went through when selecting and using MTD-compatible software:

1. becoming aware of the need for MTD compliance: hearing about the need for their business to use MTD-compatible software by a certain date
2. identifying relevant software options: exploring and filtering software options (both full software and bridging) to manage the transition to MTD for VAT
3. selecting software: making the decision on which software to use based on criteria felt to be most relevant, including trialling
4. using software, including deciding to cancel and switch: operating the software, submitting VAT returns, and deciding whether to continue or switch from the software based on experience and suitability

Participants’ capabilities and business context typically determined experiences in terms of the timing and ordering of steps, and time and effort spent on each one. Participants who got to the final step of using MTD-compatible software and were dissatisfied sometimes returned to identify other relevant options.

Participants’ experiences at each step in the process of choosing MTD-compatible software are outlined below. It is worth noting that the greatest frustrations came at the very start of finding out about the requirement.

4.3 Participants’ common frustrations and challenges across the steps in selecting and using MTD-compatible software

1. awareness stage - shock of finding out about need for MTD - fear of process of complying or consequences of not complying - frustration about having to spend (any amount / more) on software - confusion about what MTD for VAT is or involves, and what the deadlines are

2. identifying options stage - feeling overwhelmed by the number of different options - feeling unclear about what needs to be considered or explored

3. selecting software stage - uncertainty about choice, if lacking digital or financial capability or confirmation from a trusted expert

4. using software or switching or cancelling - too time-consuming - too complex - missing features - not good value

4.4 Becoming aware of the MTD for VAT change

The way in which participants became aware of MTD for VAT shaped much of their subsequent experiences. Routes to awareness determined how willing participants were to get started and levels of confidence in their own decision making. The process of selecting software was easier for participants who felt comfortable with what MTD for VAT was and got an early sense of their options, what they needed to do and by when.

Participants typically heard about MTD for VAT from HMRC, were alerted by agents, friends, or family with prior knowledge. Some participants claim to have heard about MTD through online or television advertising. How this affected experience is explored in more detail below.

Receiving a letter or email from HMRC

Participants mentioned receiving multiple forms of communication from HMRC with differing messages and a perceived lack of clear steps or actions for them to follow. Some of those who felt they received contradictory messages reported delaying the process indefinitely. These participants had not begun identifying software options for MTD for VAT when interviewed.

Being told by an agent or a friend or family member

Participants who heard about MTD through an accountant or could have ongoing conversations with one were more likely to take action to identify relevant options sooner.

Advertising

Some participants reported initially finding out about MTD from advertising. Others mentioned being reminded of the requirement through TV and online advertising. This was typically observed from software companies rather than HMRC, and there was a stronger association between HMRC and written communication (email or letter) than with advertising.

Participants who were more digitally and financially capable better understood the context of the requirement, the terms used, and its relevance to their business needs. As a result, they found it easier to start exploring how to choose appropriate MTD-compatible software.

Starting the process was also more straightforward for those able to access informed advice from others. These third parties were typically accountants, networks or peers. This step was also typically much quicker and easier for users of pre-existing software that could be easily upgraded.

“It prompted a review that was naturally going to happen anyway.” – ‘Over’, turnover £2m to £10m, Financial and Insurance Activities)

Participants with lower digital or financial confidence were more likely to respond negatively to the communication, with confusion or frustration. Complaints included feeling this was ‘jargon’ and struggling to see any value from making the change for their business. In several cases, they admitted to delaying the process of getting started until they felt ‘forced’ to do so.

“[My reaction] was very much anger and ‘why can’t they just leave me alone’? I was getting on fine, why have you got to mess with it? This is for your benefit, not my benefit.” – (‘Under’, turnover less than £50k, Agriculture, Forestry and Fishing)

4.5 Identifying software options

The process of identifying software options typically involved a combination of expert recommendations and information from HMRC or software companies.

Expert advice was deemed most effective at helping filter options. Participants who found this most straightforward usually spoke to an accountant, bookkeeper, or other contact with specialist experience. They often cross-referenced this with pre-existing knowledge or information from online searches. Familiarity with specific software or features through use and brand awareness were also important in speeding up the filtering process.

“Most options fell out due to cost and not being appropriate. I wanted the system to be on the cloud and to bring all the functions together. That meant it narrowed down to one option pretty swiftly.” – (‘Over’, £2m to £10m, Wholesaler and retail trade)

Other participants, without an agent’s support, relied more heavily on online research, often finding the HMRC software choices website through a web search. How useful participants found the information on this website is explored in more detail below. Beyond these sources, participants spoke to their software providers, watched their how-to videos online, were offered software by their banks, or visited bookkeeping groups on social media.

Many participants in the research population had heard of bridging software. However, this was generally only considered by those unwilling to pay anything for software, with lower turnover, or those reluctant to replace a comprehensive existing process.

“If you’re doing £30k [in turnover] and there’s straightforward accounting procedures, using full software seems like using a sledgehammer to crack a nut” – (‘Under’, turnover less than £50k, Wholesale and retail trade)

“Bridging, as a bolt-on to our existing software, seems to make the most sense.” – (‘Under’, turnover £50k to £85k, Wholesale and retail trade)

Outside of these participants, bridging software was felt by many to offer no clear benefit. HMRC cannot recommend software solutions. However, some felt there was a lack of clarity on the HMRC software choices website on why they might ever want to consider bridging software. Confusion and frustration with this contributed to participants (typically ‘Unders’) deciding to delay looking into any software options at all.

Some with experience or knowledge of bridging software reported it was more time-consuming to operate than full software, undermining its value. The additional step of linking bridging software to their existing record keeping system was contrasted with the previous ease of the HMRC portal. The compatibility of spreadsheet formats with operating systems and different versions of Excel was another concern highlighted with bridging software. Therefore, as an option with no cost but also low perceived value, for these participants bridging software was either an irrelevance or added confusion to choosing software.

“Why on earth is HMRC forcing you to use a spreadsheet to then manually type the data into that, rather than the boxes on the website? That just seemed a little bit silly to me.” – (‘Under’, turnover less than £50k, Software development)

“I don’t believe in doing a job by halves. If you get a half-baked thing then you can go on to have problems. I believe in doing things properly. Historically, I’ve had poor software in the past and it can be a miserable experience.” – (‘Over’, turnover £230 to £500k, Wholesale and retail trade: repair of motorcycles)

4.6 Perspectives on the HMRC software choices website

The most financially confident participants were usually able to navigate the HMRC software choices site with ease. They could find and understand the information they needed to start to make a decision.

These participants were also more likely to already have a set of criteria in mind about their requirements from MTD-compatible software. Those with higher digital confidence tended to be more willing to spend time trialling compliant software to understand if it met their needs.

“I looked on [the HMRC software choices website] it was easily explained, and understandable for me.” – (‘Under’, turnover less than £50k, Agriculture, Forestry and Fishing)

However, less financially and digitally confident participants found navigating the site more challenging. They reported feeling overwhelmed by the number of options, confused by the terminology, and struggling with using the filters to find the ‘right’ option.

“I had a brief look at the HMRC website. There were more than 100 different software programmes for heaven’s sake! How do you expect me to choose? It was too much.” – (‘Under’, turnover less than £50k, Professional, Scientific and Technical)

Overall, participants with low financial capability struggled to filter options based on the software choices website information alone. Those without access to or willingness to pay for expert advice found it harder to make a quick decision. The HMRC software website did not typically enable them to discount irrelevant options or identify a shortlist that fitted their business needs.

Participants wanted simpler explanations of all the components of MTD. In particular, this focused on what MTD was, what the software would achieve for them, the steps involved, and aspects of their business to consider when choosing. There were 4 specific types of information they felt would help them make a more confident and informed decision:

1. guarantees of the compatibility of software options with different operating systems (PC, Mac) to reassure businesses that they, colleagues, and agents could all use the software
2. an indication of which was the ‘simplest’ option for those with very basic needs or whose priority was simply complying with the requirement. Some struggled to understand whether bridging software was appropriate for their businesses’ needs
3. more clarity and transparency on the cost and pricing structure of software. Some (current users as well as those still to adopt MTD for VAT) were conscious that free trials often led to staggered and hidden costs
4. reassurances that businesses’ data would be secure when submitted through these third parties. Some, particularly ‘Unders’, resisted the idea of involving an additional, less well known or reputable organisation than HMRC in handling their financial data. They wanted more clarity on this point before they could feel comfortable selecting an option

4.7 Selecting MTD-compatible options

When deciding which software to choose, businesses typically shortlisted a few (around 2 or 3) options based mainly on brand awareness and recommendation. These considerations are explored in more detail in the next section.

Expert advice and experience in the form of recommendations and trials were relied on to drive a quicker and more confident decision. Being told which software options were similar to one another helped reduce the perceived risk of making a ‘wrong’ choice.

Expert advice and prior experience

The influence of a knowledgeable third party (for example accountant, friend, colleague) was felt to provide reassurance around the right software choice. Participants with pre-existing experience of software found it easiest to discount certain options based on missing features or poor ease of use.

Free trials and demonstrations

If free trials were available, these were used by businesses to confirm software relevance and compatibility. Given the complexity of different financial set ups, trials and demos helped participants understand whether a software option was a practical option for their business. However, while recognising the value of trials, many did not feel able to prioritise carrying these out in practice.

Discounts and offers

Promotional rates for software options drew in more price-sensitive clients and ’nudged’ others to see the value of taking on software.

“When you see someone demonstrating the system that gives you a really good idea of how easy they’re moving around, how many keystrokes are they having to make.” – (‘Over’, turnover £2m to £10m, Wholesale and retail trade)

“On the whole, accounting software, from what I’ve found, is similar – it’s a bit like driving different cars – your buttons might just be in a different place…so that on the whole wouldn’t frighten me too much.” – (‘Under’, turnover less than £50k, Human health and social work activities)

Those with higher financial capability could more clearly articulate their needs from software. For example, needing to handle frequent transactions, use bank reconciliations, have an easy-to-read dashboard. Those with higher digital capability were more willing and able to access a free trial of software.

4.8 Using MTD for VAT compatible software

The majority of the participants spoken to for this research (30 of 50 total) were VAT ‘Unders’. These businesses were only required to use MTD for VAT compatible software from April 2022 onwards. Findings around the experience of using software are primarily based on the smaller group of VAT ‘Overs’. These also cover the experience of VAT ‘Unders’ who had decided to adopt software before being formally required to.

Experiences of using software varied across the participants we spoke to for this study. The most digitally and financially capable chose software that broadly met their needs but might be missing specific features or levels of integration. For others, cost, time spent on set up and VAT submission, and difficult-to-use interfaces were the biggest drivers of negative experiences.

The main issues and challenges that emerged in relation to using MTD-compatible software included the following:

1. cost: those who did not identify any needs beyond submitting a straightforward VAT return often felt forced into making an unnecessary purchase, even if the cost was low. Without having a problem to be solved, any cost was too high for this group
2. time: some participants were frustrated at losing valuable (sometimes ‘wasted’) time learning how to operate or use new software. This was especially the case if they felt it didn’t meet their needs or offer any additional benefit
3. ease of use: this was a challenge for both those with high and low financial and digital capability. For example, one participant discovered that a software option took her more effort than the Excel templates she had developed specifically for the needs of her business
4. missing features for business oversight: those with higher financial capability and business complexity were surprised if their selected software lacked an anticipated feature. For example, not offering cashflow forecasting
5. hidden charges: software users were particularly frustrated with software which they discovered introduced new costs or became more expensive once introductory, discounted offers finished

For most participants in our research population, choosing MTD-compatible software was low on their list of business priorities. Therefore, switching was very uncommon.

Participants were typically willing to stay with a less satisfactory, even more expensive option to avoid time and effort researching, trialling or using an alternative. Switching also appeared to be time-bound, with businesses rarely deciding to change software options more than three months after their initial choice.

Few participants spoken to actively switched software options. When this happened, it was typically due to poor ease of use, or a lack of the full software functionality needed by more financially complex businesses.

In contrast, less financially complex participants switched after choosing software with features beyond their needs. These participants were pleased to choose a cheaper option. Some participants were frustrated that support or troubleshooting was not available for them. In rare cases, others were provided with a better offer. For example, free software with their bank account or an upgrade from their previous provider.

Users of MTD software had 3 key recommendations for how they would go about choosing a better option if given the chance again:

1. speak to an accountant or expert to understand the requirements of MTD in more detail and what that means for their business
2. take the time to consider how the business works, processes and needs from software, and cross-reference with an accountant
3. if in doubt, to choose one of the biggest brands, as ‘they are big for a reason’

It is important to note that these represent a best-case scenario not available to all businesses. Each are reliant on access to expert advice, time, or money.

5. Key audience considerations for MTD-compatible software

This section sets out the key factors and features considered and prioritised by businesses when choosing MTD-compatible software, including the role played by tax agents. It also explores how businesses’ priorities changed as they worked through the steps of selecting software.

5.1 Overview of the main considerations and priorities

While working through the steps of selecting and beginning to use MTD-compatible software, participants considered a range of factors which influenced their decision-making.

Participants with low digital confidence or with simple finances, tended to focus on factors which they perceived would limit their risks in terms of financial cost, investment of time and security of software. Participants with high digital confidence or those with more complex finances were more likely to think about these factors in terms of potential value rather than risk.

The key considerations for choosing software discussed by participants in our research population were:

1. cost: participants considered both the upfront and the ongoing costs of different software options. They also considered how much of their, or their tax agent’s time might be needed to work with different types of software. The priority for most participants was to minimise these costs
2. ease of use: participants wanted software to be as easy, or easier to use than their previous system for managing finances. Some were open to managing additional complexity if the software brought other benefits
3. recommendation: while participants did not tend to say that a recommendation was the most important factor in choosing software, most asked for one from trusted third parties such as tax agents or other business owners
4. features: the main features prioritised by participants were compatibility with existing systems, such as industry specific software, or for a cloud-based package which would allow them, or their tax agent, to access the system anywhere
5. security and reliability: data security was a priority for some participants worried about who might have access to their business data and what it might be used for. There were also some concerns about the long-term reliability for some software options and level of support available to users
6. familiarity: participants with experience of a specific software provider tended to put this above most, if not all, other factors. They felt they knew what to expect and felt confident in being able to use the software

While these considerations have been listed in order of importance overall, the key considerations and priorities for each business differed. These were closely linked to digital confidence and the level of financial complexity.

The considerations and priorities of businesses also tended to change while businesses were moving through the steps of selecting and beginning to use MTD-compatible software. The key considerations and priorities which most businesses focussed on at each step were:

1. awareness: at this step, businesses tended to focus on recommendations as well as their familiarity with specific providers. This allowed them to become aware of what MTD-compatible software was and to begin creating a shortlist or a strategy for choosing software
2. identifying options: once businesses had created a shortlist of providers or packages, they tended to identify different options would cost and what features they offered. These were normally things which businesses could check online. Ease of use was also important at this step although it was more challenging for businesses to compare this without trialling each software package
3. selecting software: at the selecting software step, cost was still the priority for most businesses, but ease of use started to become more important. Participants wanted to ensure that the software they chose was something which they were comfortable using. Features were also still important at this step as businesses needed to know the software would do what they needed it to
4. using, switching, or cancelling software: once businesses began using software or decided to switch or stop using software, ease of use and features tended to be the priorities. Participants focussed on how well the software was working for them, how they felt about using it and whether the features worked as expected. Cost was still a consideration at this stage but more in a sense of whether the package was felt to be providing good value for money. Some participants also considered the security and reliability of the software and whether they felt confident that it would protect their data and be a reliable long-term option

5.2 Consideration 1: Cost of software

Cost was a key consideration for all participants although they did not all think about cost in the same way. Reasonable cost was linked to participants’ perceived value in using software. For those that saw no benefits, any cost was seen as too much. For those open to paying for software, cost was weighed against the potential benefits the software may bring.

Participants needed to know how much the business would need to pay for MTD-compatible software. This included the upfront cost and the ongoing monthly or annual cost for the package. Introductory offers, such as getting the first few months’ free or at a lower price, were attractive to participants. However, they did think about how much they would need to pay when the offer ended and how much the price may increase over time.

Those who were looking for a full software package with specific features, discussed the difficulties of understanding the full cost of packages and being able to make comparisons. Sometimes, the basic package did not include the features they needed.

Participants who wanted certain features said that they had to check carefully to see whether these were included or were paid add-ons. These included the ability to manage payroll or pensions.

Checking and comparing costs for individual features was described as confusing by some participants. This was especially to the case when trying weigh up the cost of the feature against a potential saving in time or tax agent fees.

For participants who had chosen to use bridging software, cost generally meant ‘free’ and this was their key priority. These participants tended to want to avoid paying anything as they did not believe this software would bring any benefits to their business. They were often prepared to spend more of their own, or their tax agent’s time to manage business finances in a paper or spreadsheet-based system than to pay for software.

“I jumped for joy when I saw a free package.” (‘Under’, turnover less than £50K, Agriculture, Forestry and Fishing)

For participants willing to pay for software to save time or to access new features, cost generally meant ‘value’. These participants tended to weigh the cost of the software with the potential savings in their own time or in tax agent fees. Some were also prepared to invest both time and money to benefit from automation or from more detailed records for their business. This was particularly the case for those in a period of growth.

“I don’t want to half-pay for something, or have it for free, when I can pay a little bit more and have it all automated for me.” – (‘Over’, turnover £230 to £500K, Agriculture, Forestry and Fishing)

While cost was important to all participants, it tended to be the priority for those with low financial complexity and low digital confidence. These participants were often wary of software, and they generally did not see any potential benefits to their business in using it. They viewed the need for MTD-compatible software as a charge for compliance with a tax that they used to manage free of charge. Some of these businesses weighed the financial cost of software against the potential financial loss of de-registering for VAT.

“The key question I have is, is it worth swapping over [or de-register]? It could cost more than I claim back. My accountant said buying a package could be £500 and then there could be annual fees, so it doesn’t feel worth it.” – (‘Under’, turnover less than £50k, Agriculture, Forestry and Fishing)

5.3 Consideration 2: Ease of use

Participants wanted software to be as easy to use as their pre-MTD system. However, those with no prior experience of using software tended to assume that packages would be complicated to use. This acted as a significant barrier for many.

Participants were aware that moving to any new software would require an investment of time upfront to get set up and learn how to use the software. They wanted this step to be as quick and simple as possible.

The greater concern was how much time and effort they would have to spend on using the software in the longer-term. Participants wanted to find software that meant they would need to spend the same amount, ideally less, time than they did with the pre-MTD system.

Ease of use was a priority for all types of businesses. Participants were concerned about making the wrong choice and selecting software that would be complicated or difficult to use. This could result in spending considerably more time on record keeping than they did prior to MTD. Ease was associated with:

1. intuitive interface: businesses wanted software to be simple and pleasant to work with. They were concerned about the time it might take to use the software and how they might manage if they got stuck during a task
2. flexibility: some businesses, particularly those that were financially complex or using industry specific software, wanted to ensure they chose software that would fit with their needs

These factors were important to all types of businesses although participants had different expectations about what ‘easy to use’ would mean. This depended on their digital confidence and the financial complexity of the business. Participants with low digital confidence or simple finances were looking for something that was as close to their pre-MTD system as possible. These participants were wary of additional features which they felt might confuse them or create unnecessary complexity.

“If they want me to do it, they’ve got to make it super easy.” – (‘Under’, turnover £50k to £85k, Wholesale and Retail)

Participants who were open to the potential benefits of software were willing to accept some complexity if this brought additional benefits in the short or medium-term. For example, more automation, more detailed or accurate records or a reduction in tax agent fees. For these participants, ease of use was more important, or as equally important as cost. They believed that the right software could save them more money than it would cost.

“Ease overrides cost with things like this. Using a cheap product can cost you more in time than you would have spent for a proper package.” – (‘Over’, turnover £85 to £230k, Construction)

Participants with low digital confidence prioritised ease of use. This, along with cost, was weighed against the option of de-registering for VAT if they did not find the right software. These participants were often anxious or annoyed about the idea of having to learn how to use MTD-compatible software, rather than concerned about the time it might take to do so. Reassurance and confidence building were needed for these participants as they were unsure about whether they would be able to manage to use software without significant support.

“If it’s not complicated, I’ll be all for it. I was panicking about doing my returns online the first time, but my daughter showed me, and it was a cinch. If it’s complicated, I won’t do it. I’ll de-register.” – (‘Under’, turnover less than £50k, Other: Furniture maker)

The only participants who did not describe ease of use as a key consideration were those with previous experience of using software. These participants were confident that they would be able to learn and work with most software packages. Instead, they focused on getting software with the right features.

“You can learn all these things as long as the features are there to use” – (‘Over’, turnover £85k to £230k, Real Estate Activities)

5.4 Consideration 3: Recommendation

Most participants drew on the experiences of others when choosing MTD-compatible software. For many, looking for recommendations was the first step in the process for choosing software. For some, it was the only step, as they based their decision on this alone.

Recommendations allowed participants to shortlist and choose software more quickly, and with more confidence than by looking at options and deciding alone. Participants believed that speaking to someone with experience of a software package, or of multiple packages would mean they would be less likely to choose one which was difficult to use, overpriced or which did not have the right features. The recommendations of tax agents, other businesses and even online reviews were described as more influential and trusted than the information provided by HMRC

Tax agents’ recommendations were the most influential. Participants felt their agent would have experience of different software packages and would be able to recommend one that suited the needs of their business. For those who relied on their tax agent to handle most or all their records and taxes, the preference of the agent was especially important. These businesses may be charged more for using a different software package.

“[My] accountant said it was probably the best in terms of value for money and that they hadn’t had any problems with it.” – (’Over’, turnover £230 to £500k, Wholesale and Retail trade; Repair of Motor Vehicles and motorcycles)

Participants also sought recommendations from other businesses, typically those of friends or family, who had already chosen MTD-compatible software. Others used online reviews of specific packages they were looking at. These sources helped participants to understand the experiences of others in a similar position in terms of digital confidence, financial complexity, or their specific sector.

Choosing software recommended by a friend or family member was appealing to some participants. They felt this would give them a source of free, informal support in case they had questions or encountered a problem.

“I know it will work and if I have a problem, I know people who might be able to help me.” – (‘Under’, turnover less than £50k, Other Service Activities)

Some businesses said that they had unsuccessfully sought a recommendation from other business owners. They were unable to get one because the businesses they knew were at the same stage of choosing software as they were. This suggests that this factor may become more important as more businesses gain experience of different software packages.

“I would probably ask a colleague to make a recommendation, but MTD is new, we are all shooting in the dark.” – (‘Under’, turnover less than £50k, Professional, Scientific and Technical)

5.5 Consideration 4: Features

Software features were important to participants in financially complex businesses that were struggling with record keeping and those with experience of using software. The main types of features discussed by participants from these businesses were:

1. offline option: this was a must for participants whose business was based in an area with unreliable broadband and those who travelled abroad for work
2. cloud based package: participants who wanted multiple people to be able to access their records from different devices and locations, for example, their bookkeeper and their tax agent, looked for cloud-based options
3. smart phone app: businesses that were wholly or mostly based on their clients’ sites rather than their own premises were more likely to find the idea of a smart phone app useful
4. integration of PAYE, invoicing, or pensions: financially complex businesses that were not using any kind of software tended to want something that would meet as many of their needs as possible

However appealing or useful some participants thought these features would be, this was always weighed against how much they cost. Participants paid for features either as add-ons to a basic package they had chosen, or by selecting a more expensive package or provider to access them.

Free trials were seen as helpful by those unsure about whether a feature would be as useful or as worth the cost as they hoped this. Trials allow them to find this out before committing.

“Once we’d identified the options… we gave it a trial use, it was obvious that it met our needs. It then became a very simple decision because it meets your needs, your accountants use it, and it’s cheap.” – (‘Under’, turnover less than £50K, Financial and Insurance Activities)

Participants who had been using software with additional features had mixed views about the value of them. Some were disappointed that the features did not work as smoothly as expected or did not save them the time they hoped they would. For others, additional features were an unexpected benefit which they had not considered when selecting software but had later found to be useful.

Additional software features were not considered at all important to businesses with low digital confidence or low financial complexity. The only feature these businesses wanted was simple, low cost MTD compliance. For those that were open to paying for software, additional features could be a barrier. Some did not want to think they were paying for something they would not use.

“I would just make it (free software) work.” – (‘Under’, turnover less than £50K, Agriculture, Forestry and Fishing)

5.6 Consideration 5: Security and reliability

Some participants were concerned about the security of their data. This was particularly the case for those with low digital confidence, no experience of using cloud-based software, or those who had experienced hacking or a scam. These participants were worried that their data could be misused by a software provider or that the software could be hacked by a third party.

Participants with these concerns were particularly wary of free-to-use software. They assumed that the provider may either be harvesting their data or may not have created a secure product.

They felt that while some software may be free-to-use, that did not equate to no cost. It may lead to their data being sold or them becoming a victim of a scam or fraud. There were also concerns that free or cheap software may not be supported long-term. This could mean they would need to change to a different software package at any time.

“If you’re not paying then they’re probably harvesting that information. You will be paying in some way, they aren’t doing it out of the goodness of their hearts.” – (‘Under’, turnover less than £50k, Agriculture, Forestry and Fishing)

These concerns led participants to choosing one of the familiar brands. They often believed they were likely to be more secure, trustworthy, and better supported than software from a provider they had not heard of.

“It [brand name] provides an assurance, it’s out in the mainstream.” – (‘Under’, turnover £50k to £85k, Professional, scientific & technical)

5.7 Consideration 6: Familiarity

Experience with a specific software provider carried a lot of weight with businesses. Participants that had previously used software or were using a non-MTD compatible package tended to stick with the same provider if they could. This was particularly the case for businesses that employed accounting professionals as they tended to have a favoured provider, often the one the employee had used since training.

“It was like just stepping into the old shoes again, oh you put this in, you put that date in – it was just straightforward.” – (‘Under’, turnover less than £50K, Agriculture, Forestry and Fishing)

Familiarity was linked with ease and features. Participants felt they knew what they would get and would not waste time learning a new system or having to transfer data over. Some believed that they could probably switch to a cheaper provider that would be just as good, possibly better, than their existing one, but they felt this was too risky. This meant that they willingly paid more money for fewer features, or a less user-friendly interface, so they could stick to what they knew.

Businesses only switched provider if they were extremely unhappy with their previous package or if they could not afford the MTD-compatible package. In these cases, this change was seen as a major decision which was carefully considered.

“Any previous experience I’ve had when you change software, it’s a real pain in the neck, and it’s not something you want to do unless there are huge benefits from it.” – (‘Over’, turnover £85K to £230K, Accommodation and Food Service Activities)

5.8 Other considerations

In addition to the above key considerations and priorities, some businesses also had other specific considerations when choosing MTD compatible software. These were generally associated with compatibility with the businesses’ IT and VAT systems, including:

1. compatibility with the business’ operating system: businesses that were using macOS discussed the barriers they had experienced in finding a compatible software package
2. compatibility with tax agent’s system: businesses tended to check that their software choice would be compatible with their tax agent. They were hoping to maintain or reduce their agent fees so tried to avoid packages that might create more work
3. VAT rates used: businesses who used the flat rate VAT scheme reported that not all software packages were set-up for this and that it was not immediate apparent which packages were suitable when they were looking at options
4. support available: there was a feeling that the big brands would provide more customer support than the smaller, lesser-known providers. There were some instances of businesses prioritising customer support when they were switching packages as they had been unhappy with their previous provider

6. Perspectives on ITSA and key considerations

This section explores participants’ awareness of the introduction of MTD for Income Tax Self Assessment (ITSA). If affected, participants were asked whether they had begun to make any preparations for this change. It also highlights participants’ key questions.

During the interviews, we explained to participants that self-employed individuals and landlords with annual business or property income above £10,000 will be required to follow MTD rules for their Income Tax Self-Assessment (ITSA) from April 2024. General partnerships will also need to join MTD for ITSA from April 2025.

In addition to exploring the software decision process for MTD for VAT, the research sought to understand whether participants’ considerations for MTD for ITSA were different to MTD for VAT, and whether they had considered both VAT and ITSA when making their software choices.

This was explored with those also filing Income Tax Self Assessment. Participants were asked to identify whether this change was relevant to their circumstances. Then the implications of the change were explored in more detail with those who felt it would affect them.

6.1 Awareness of MTD for ITSA and reactions to the change

There was low awareness of the introduction of MTD for ITSA. Participants that had some awareness of the change were either accounting professionals who tried to keep up to date with HMRC tax policy changes or were business owners who had been informed by their tax agent.

When informed about the change during the research, participants who were landlords or sole traders said they felt clear that the change would affect them. Participants who were a director of a limited company seemed less sure. Some assumed that they would be affected as they were required to complete ITSA each year, but others questioned whether this was the case if most of their income was in the form of dividends.

Participants had mixed reactions to the thought of needing to comply with MTD for ITSA. Some felt that the change was a natural, almost inevitable, next step in digitisation of the tax system, and they were generally positive or neutral about this. These participants tended to have positive views about digitisation and supported HMRC’s plans in principle, even if, at a personal level, they were not pleased about having to change the way they do things.

“Yikes, that’s me as well. It’s inevitable really, isn’t it?” – (‘Under’, turnover less than £50k, Other Service Activities)

Other participants expressed shock and displeasure at the news. These participants tended to be less understanding of the purpose of MTD and they were resistant to needing to deal with any changes to how they manage their tax. These participants were concerned that MTD for ITSA would lead to greater complexity and further costs for them.

6.2 Key considerations and questions

As awareness of the change was low, participants had rarely thought about how or when they might prepare for the move to MTD for ITSA. When prompted, participants generally said they expected to take a similar approach as they had for MTD for VAT.

Most did not plan to take much or any action yet. The reason for this was mainly due to a need for further information about the change, how it might affect them and what they will need to do. For those who had delayed taking action on MTD for VAT until the last minute, they assumed they would probably take a similar deadline driven approach as the change was unlikely to be a priority for them.

Participants who paid their tax agent to handle their ITSA tended to see this change as their agent’s issue to deal with rather than their own. These participants did wonder if this change may require more work from them or if it may cost them more, but they were happy to wait until their agent got in touch to advise them on what, if anything, they needed to do.

“I don’t think it’s an issue, my accountant will be on the ball.” – (‘Under’, turnover less than £50k, Arts, Entertainment and Recreation)

There was little consideration about whether MTD for ITSA would require them to purchase new software. This was a consequence of participants feeling unclear about exactly how ITSA would change.

When prompted, most participants said they either hoped, or assumed, that their current software package would cover this. If new software is needed, they felt their priorities would be the same as for VAT but they were unhappy about the thought of needing to select and pay for another software package.

“My software will be set up for MTD anyway so surely it will cover both types?” – (‘Under’, turnover less than £50k, Professional, Scientific and Technical Activities)

There were no clear support needs at this stage, but participants did have a number of questions about the change, including:

• “I only complete an ITSA to pay tax on my dividends, will this affect me?”
• “I’m a landlord, does this mean I will need to start invoicing my tenants?”
• “My accountant handles my ITSA, do I have to do anything?”
• “Will it still be an annual return, or will I have to do it every quarter?”
• “Will there be a bridging software option for this?”

7. How HMRC can best provide support and guidance

This section explores how HMRC guidance, communications, and support could be provided to businesses at each step to ensure businesses are more prepared and confident during the process of moving to MTD-compatible software.

7.1 Communications needs at the ‘Awareness’ step

The main need for participants at the initial awareness step was to be engaged with the move to MTD for VAT. While participants generally had some awareness of the change, MTD was not their priority, and they often had many other issues competing for their time and attention. This meant that communications about MTD were often ignored and that many businesses did not make it a priority until they reached the deadline for becoming compliant.

Participants felt that HMRC communications about MTD needed to be better designed to grab their attention and engage them. The starting point for this, they said, was to provide a clear explanation of what MTD is, the purpose of it and what it will mean in practice. Many participants, even after becoming MTD compliant, said that they still did not really understand what MTD is or why HMRC introduced it

Simplifying the way these points are explained may also help to overcome the annoyance felt by some at the need to change how they do things. A clearer understanding of the rationale and steps involved may encourage action. Businesses would also benefit from having a clearer idea of what MTD means in practice and how it will change how they manage their taxes.

“It would have been helpful for HMRC to explain a little more about what it meant and the steps to take to get ready. No one has told me what it actually means.”. – (‘Under’, turnover £50k to £85k, Other: Film and television production)

There was a perception that MTD was primarily for HMRC’s benefit rather than for businesses and this contributed to their lack of engagement with it. Participants thought that businesses may be more likely to take interest in MTD if early communications outline the potential benefits to businesses by moving to MTD.

Information about how using MTD-compatible software may benefit businesses would also be useful and help to encourage those that may benefit from using full software to consider this before the deadline.

“What HMRC hasn’t done, it hasn’t made the case to businesses for why they should bother with MTD in the first place. They could do a 40-60 second elevator pitch to tell you why using this stuff is a good idea.” – (Focus group with VAT ‘Overs’)

Once businesses are aware of what MTD is and how the change might benefit them, they need to know what to do next. Participants felt that current MTD communications tend to be passive which makes it difficult for businesses to know what is expected of them.

Instead, they wanted communications to include a clear call to action so they would know how to begin the process of moving to MTD-compatible software. Specifically, they wanted communications to answer the following questions:

• what should I do next?
• what steps do I need to take to move to MTD-compatible software?
• what is the deadline for moving to MTD-compatible software?
• what will happen if I am not using MTD-compatible software by the deadline?
• where can I go for more information?

“It should be ‘get this in place, these are the benefits’ or they could even go with ‘do this now or you will be fined’. Instead, it’s all just very passive. No benefits, no call to action.” – (‘Under’, turnover less than £50k, Professional, Scientific and Technical)

Participants wanted these messages to cut through clearly, but they did not want to be constantly bombarded with information. In terms of communication channels, there was a mix of those who preferred to be contacted by post or by email which suggests that both channels should continue to be used.

Some participants also said that they would have benefitted from pop-up messages on their HMRC online VAT account to remind businesses of it at an appropriate moment.

7.2 Support needs at the ‘Identifying Options’ step

When it came to identifying software options, some participants said that they did not know where to start and most said they felt overwhelmed by the number of options they needed to choose from.

“Choice paralysis… you look at the HMRC website and it’s got so many things on there, and you’re like who do I use? It’s like too much choice.” – (Focus group with VAT ‘Unders’)

Participants said they would have benefitted from more guidance around the different types of software options available, including between full and bridging software.

Clearly explaining the differences between the types of software available and different features available may encourage businesses to think about what they might find useful and how they could benefit from the change. Participants suggested that this information could be provided in HMRC webinars, online videos or through links to impartial third-party sites.

Participants that had looked at the list of MTD-compatible software on HMRC’s software options website said they found it difficult to create a shortlist or to know which packages might suit their needs. They felt that more filtering options could help them with this, including:

• flat Rate Scheme compatible options
• macOS compatible options
• software with an offline option
• software with security certifications

“HMRC could have filter system on the website, to filter the software choice list… it’s just a big massive long list, and you have to go into them and have a wee nosy to find out things.” – (Focus group with VAT ‘Unders’)

Ideally, participants wanted HMRC to provide some guidance on the types of software that might be best suited to a business of their size and type. For example, a consultancy business that only sent a small number of high value invoices a year did not feel they needed full software. However, they struggled to identify options that would be suitable so stuck to bridging software to ensure they did not over-buy.

It should be noted here that HMRC cannot recommend one software product or service over another due to commercial concerns. Therefore, providing this level of guidance would be out of the organisation’s remit.

Participants also felt that information about the cost of different options could be improved. Some reported that they had looked at options listed as free-to-use which then turned out not be free at all. This created further confusion and frustration for some businesses that were already overwhelmed by choice.

7.3 Support needs at the ‘Selecting Software’ step

Participants often described not being confident about being able to choose the right MTD-compatible software. The main reason for this was that participants felt there was too much choice for them to be able to identify the right software package for them. In addition, those with low financial or digital confidence felt ill-equipped for making this choice.

Reflecting on their experience of selecting software, participants identified things that helped them to select software as well as support they would have appreciated at the time.

The amount of choice available and the differences between product specifications meant that it was difficult for businesses to compare software packages. Businesses wanted to be able to compare software options in the same way they can for insurance, allowing them to filter for features and see an accurate cost. Many were aware HMRC cannot provide this, but they felt that a link to an impartial third-party site would be useful.

“Something almost like a Which? report.” – (‘Under’, turnover less than £50K, Wholesale and Retail trade)

Free trials of software packages were appreciated by those that used them. Participants that trialled their software package before signing up appeared happier and more confident about their decision, especially if they had trialled more than one package before making a decision.

Increasing the availability of free trials of software packages could encourage businesses that are interested in full software, but worried about committing to a contract, to discover the benefits software might provide relatively risk-free.

“You have to put time aside to trial software for yourself as it needs to suit your needs.” – (‘Under’, turnover less than £50K, Arts, Entertainment and Recreation)

For those concerned about the security of software package options, any additional information or reassurance that could be provided about this could be reassuring. Many participants said they chose a familiar brand simply because they assumed it would be more secure. Information about software security and providers’ use of data could improve trust and confidence in a greater range of software options.

There was also a desire for a greater amount of peer support at this step. Some participants that did not have a formal or informal peer network said they would benefit from being able to read or discuss the experiences of other businesses in selecting and using MTD-compatible software.

Participants also felt that this could be useful as an ongoing source of support to discuss software and MTD. They said they would appreciate independent guidance on which forums or websites to trust.

“There is a lot of value in talking to other businesses of the same type as yours and find out what software they use and how they use it and how it’s helpful.” – (Focus group with VAT ‘Overs’)

7.4 Support needs at the ‘Using or Switching Software’ step

Once participants had selected a software package and began to start using it, their thoughts tended to turn towards their first MTD VAT submission. Many participants in our research population said they did not know what to expect when they came to submit their first VAT return via MTD and they had generally expected it to be difficult. They described feeling anxious about this as they thought they might do something wrong and be penalised by HMRC.

“I still don’t know what a return by MTD looks like.” – (‘Under’, turnover £50k to £85k, Other: Film and television production)

Showing businesses how simple an MTD VAT submission could be may help to alleviate some of these fears. Participants suggested that HMRC could provide live and recorded demonstrations of someone submitting a return step-by-step so that businesses would know what a submission looked like before they needed to do one and make them feel more confident.

“The HMRC webinars are there but they assume everyone is sat at a desk all day and can join one on a weekday afternoon or at lunchtime. That doesn’t work for people in my industry. We have to do these things on evenings and weekends.” – (‘Under’, turnover less than £50k, Agriculture, Forestry and Fishing)

Participants suggested that there may also be some benefit to providing examples of submissions from both full and bridging software. This would allow businesses in the process of selecting software to see the differences and feel more confident deciding which type of software to choose.

Finally, participants that were using a full software package for the first time said they would benefit from support with using their software to its full potential. Some participants said there were several features in their software package they were unsure how to use or what benefit they might bring to the business.

These participants said they would appreciate being able to watch live and recorded webinars, run by HMRC or the software providers, discussing how different features can be used and how they might improve how businesses manage their finances.

“I feel I’m not using the software to its potential and would like to step up.” – (Focus group with VAT ‘Overs’)

8. Appendices

8.1 Appendix 1: Sample table - depth interviews

Total	Overs	Unders
50 interviews	20	30

Primary quotas

Agent choice	Overs	Unders
No advice	15	20
Took some advice	4	9
Solely agent advice	0	0
Mainly agent advice	1	1

Software type	Overs	Unders
Full software	16	0
Bridging Software	2	0
Other	2	0

Secondary quotas

Software complexity	Overs	Unders
Basic	3	0
Standard	6	0
Advanced	5	0
Don’t know/not sure	6	0

Software cost	Overs	Unders
Free	1	0
Less than £50 per year	2	0
More than £50 per year	15	0
Unknown	2	0

Turnover	Overs	Unders
Less than £50K	5	26
£50K - £85K	0	3
£85K - £110K; £110K - £150K; £150K - £230K	7	0
£230K - £500K; £500k - £1M; £1M - £2M	6	1
£2M - £5M; £5M -£10M	2	0

Sector	Overs	Unders
Professional, Scientific and Technical Activities	5	6
Wholesale and Retail trade; Repair of Motor Vehicles and motorcycles	3	6
Construction	2	1
Accommodation and Food Service Activities	1	0
Manufacturing	1	1
Administrative and Support Service Activities	0	0
Transportation and Storage	0	0
Agriculture, Forestry and Fishing	3	5
Arts, Entertainment and Recreation	0	3
Real Estate Activities	3	1
Human Health and Social Work Activities	0	2
Education	0	0
Financial and Insurance Activities	2	0
Water Supply; Sewerage, Waste Management and Remediation activities	0	0
Mining and Quarrying	0	0
Other Service Activities	0	1
Electricity, Gas, Steam and Air Conditioning Supply	0	0
Public Administration and Defence; Compulsory Social Security	0	0
Other (Please specify)	0	4

Structure	Overs	Unders
Sole trader	1	8
Partnership	2	2
Limited/non-limited business	17	20

Lifecycle	Overs	Unders
Growth	13	16
Maintain or wind down	7	14

Digital confidence	Overs	Unders
1 - not at all confident	1	4
2	0	2
3	0	2
4	0	1
5	1	5
6	0	6
7	5	2
8	2	3
9	3	1
10 - extremely confident	8	4

8.2 Appendix 2: Sample table: Focus groups

Total	Overs	Unders
Groups	2	2
Participants	6	10

Primary quotas

Agent choice	Overs	Unders
No advice	5	9
Took some advice	1	0
Solely agent advice	0	0
Mainly agent advice	0	1

Software type	Overs	Unders
Full software	4	0
Bridging software	0	0
Other	2	0

Secondary quotas

Software complexity	Overs	Unders
Basic	0	0
Standard	3	0
Advanced	2	0
Don’t know / not sure	0	0

Software cost	Overs	Unders
Free	0	0
Less than £50 p/year	0	0
More than £50 p/year	4	0
Unknown	0	0

Turnover	Overs	Unders
Less than £50K	3	8
£50K - £85K	0	1
£85K - £110K; £110K - £150K; £150K - £230K	1	0
£230K - £500K; £500k - £1M; £1M - £2M	1	1
£2M - £5M; £5M -£10M	1	0

Sector	Overs	Unders
Professional, Scientific and Technical Activities	3	3
Wholesale and Retail trade; Repair of Motor Vehicles and motorcycles	0	2
Construction	0	1
Accommodation and Food Service Activities	0	0
Manufacturing	1	0
Administrative and Support Service Activities	0	0
Transportation and Storage	0	0
Agriculture, Forestry and Fishing	1	1
Arts, Entertainment and Recreation	0	3
Real Estate Activities	0	0
Human Health and Social Work Activities	0	0
Education	0	0
Financial and Insurance Activities	1	0
Water Supply; Sewerage, Waste Management and Remediation activities	0	0
Mining and Quarrying	0	0
Other Service Activities	0	0
Electricity, Gas, Steam and Air Conditioning Supply	0	0
Public Administration and Defence; Compulsory Social Security	0	0
Other (Please specify)	0	0

Structure	Overs	Unders
Sole Trader	0	4
Partnership	0	1
Limited/non-limited business	6	5

Lifecycle	Overs	Unders
Growth	4	7
Maintain or wind down	2	3

Digital confidence	Overs	Unders
1 - not confident at all	0	1
2	0	0
3	0	1
4	0	1
5	1	2
6	0	2
7	0	1
8	1	1
9	2	1
10 - extremely confident	2	0