The breakthroughs recorded in the spheres of ICT had led to the introduction of an e-tax system. This is credited for an appreciable improvement of the level of tax compliance and at the same time lowering the cost of tax administration (Mustapha and Sheikh, 2014). ‘Making Tax Digital’ leverages on the gains of E-tax and E-filing systems and though it is still a work-in-progress with many practicalities needing fine-tuning, it seems to have gained traction. The digitalisation of the taxation system in varied forms but centred on an on-line tax assessment and payments have been adopted in many nations notably Canada, Taiwan, Australia, Malaysia, Singapore, Kenya, and South Africa among others (Obid and Bojuwon, 2014). Generally, the argument for tax digitalisation by the foregoing countries as well as the UK cites convenience, timesaving, tax simplification, cost reduction, and the closure of the tax gap (McLure et al., 1990). In the UK, ‘Making Tax Digital’ for all categories of individual and corporate taxpayers is founded on four core concerns it aims to accommodate. These as listed by Sadiq (2021) are: (i) It is aimed at making Tax compliance and monitoring much simpler; (ii) It aims to have unhindered access at all times to Information enabling tax liabilities to be more quickly and efficiently determined; (iii) Information on both individuals and businesses income-generating activities will be stored in one place such that all taxes are bunched up into a single digital Tax Account; and finally, (iv) It is also aimed to make digital communications with Her Majesty's Revenue and Customs (HMRC) available at all times thus providing taxpayers convenience and greatly reduce the necessity for phone or post contact

Expectedly, such a significant and far-reaching overhaul of the taxation system will have its attending challenges, technical glitches, and sometimes out-rightly conflicting provisions. HMRC has made efforts to address several of these areas of concern by outsourcing the review and assessment of the MTD initiative to teams of seasoned experts drawn from the financial, the industry, the academia, and the ICT circles.  These consultations have evolved and now form the basis of the MTD transitioning period.

According to the same publication, the most attractive workers have skills that cannot be replaced with computers. He, however, concludes by emphasising the importance of the younger generation of accountants engaging in further professional training and self-improvement programs.

Sian (2018), in a recent paper canvas on the importance of moving in compliance with the vision of MTD. ‘Going digital should be a bonus, not a burden’. He argues that accountants can provide timely tax and other professional advice to businesses that adopt some form of digital record keeping. In his opinion, accountancy practices that lead their clients in the direction of early compliance with the HMRC digital tax initiative would have taken good advantage of MTD and opened their firms to businesses that seek efficient Management Consultancy. He added that Tech-savvy cloud-accounting firms ‘are likely to be in high demand as the deadline’ for mandatory compliance approaches. 

Sain (2018) further asserted that the prosperity of a nation on one hand and its economic decline on the other have always had a bearing on tax policy. The author further opines that whereas taxes are what we pay for civilised society, how we tax and spend determine on whether we are prosperous or poor.

The present UK taxation system consisting of various shades of direct and indirect tax structures has a very long history to it; spanning at least two centuries. Particularly in the past 100 years, a period that has witnessed two World Wars, it has evolved through changing reforms as the government continues to think and rethink what is both effective and efficient tax administration and what is convenient for taxpayers.

Studies indicate that in the past two decades, “substantial progress has been made by the U.K. Government in developing an effective e-taxation system”. As of 2006 through the creation of a “fully automated tax portfolio; tax payments can now be made in 48 h” (Nisar, 2006:113). This level of achievement has stimulated HMRC to invest in further research.

It is important to highlight that SMEs represent a significant part of the UK economy. This part of the study summarises the contributions made by SMEs in data obtained from the Department for Business, Energy and Industrial Strategy, and Business Population Estimates 2017. The research suggests that the dominant industry sectors such as construction (18%) which account for 34% of SME turnover (Figure 1). The basis of the study focuses on impact of MTD by industrial sectors. Figure 1 depicts spread of industry by sector.

This empirical research employs a pragmatic paradigm. This is in line with the fact that the knowledge and reality of taxation are based on beliefs and habits that are socially constructed. Furthermore, pragmatism is representative of a mixed method; however this study will be quantitative dominant using a research instrument (Appendix 1) and therefore is most suitable for this research. Hence, this research is primarily deemed to be explanatory in nature and thus adopts a deductive strategy. Questionnaires were employed to collect raw data from a sample of 202 taxpayers. The data were analysed statistically through descriptive statistics and inferential analysis using the Statistical Product and Service Solution IBM SPSS software (Hejase and Hejase, 2013). Furthermore, a discussion of the reliability and validity of the primary data discussed the quality of the data. Firstly, the sample unit was defined. To ascertain the confidence levels of taxpayers in the Greater Manchester region, the sample unit would be taxpayers operated a business within that region.

Secondly, a sample framework was obtained listing SMEs in the region. Due care was taken to ensure that the sample frame error was minimised by using the latest information held within the public record.

Thirdly, the sample size was determined. With the confidence level set at 95%, a sample size of 203 was the most convenient size based on the limitations of research.

Fourthly, the sample size was selected using a cross-sectional study design. The 202 taxpayers were selected based on inclusion and exclusion criteria (Setia, 2016).

This examination will test the hypothesis that if MTD is introduced, taxpayers in the construction and transport industries will be weaker in terms of levels of readiness for MTD.

The contribution of industry to the United Kingdom’s economy can be measured in various ways, such as the number of companies in the sector, contribution to the economic output, and employment rates. This study attempts to ascertain if there is any statistically significant difference between industry sectors with regards to confidence levels transitioning and their readiness for MTD. The pie chart depicted in Figure 1 shows the sector sample sizes in each industry sector.

This diagram illustrates that the spread of industries ranging from the lowest sector Professional, Scientific, and Technical Services (2.96%) to the highest industrial sector construction (17.73%) and the potential implications on tax revenues of non-compliant behaviour post the implementation of MTD. This examination attempts to ascertain whether there is a statistically significant difference between these sectors with regard to tax compliance and readiness for making tax digital. This will help HMRC implement anti-avoidance and early intervention strategies to support these sectors.

Based on the results presented in Table 2, the results of manufacturing sector suggest respondents who use the services of an agent responded that they were fairly confident (Table 1) with the transition to Making Tax Digital.

These included aspects of preparing, meeting quarterly deadlines and paying taxes quarterly, and tests for readiness for Making Tax Digital. The results demonstrated taxpayers in this industry who did not use the services of an agent indicated that they were slightly confident to somewhat confident. This average confidence level presents an overall test of the readiness of taxpayers for MTD. Furthermore, Motor Trade results suggest that respondents in this sector who used an agent demonstrated they were somewhat confident. Those taxpayers who did not use the services on agent indicated that they were only slightly confident about the transition. Additionally, the Transport and Storage results presented in Table 2 and Figure 2 suggest that respondents who used the services of an agent in the Transport and Storage sectors indicated that they were completely confident and thus were in a good position to transition to Making Tax Digital. Those respondents who did not use an agent indicated that they are confident. The Information and Communication findings suggest that taxpayers who used the services of an agent in the Information and Communication industry indicated a test average of being fairly confident. Those in this sample who did not use the services of an agent indicated that they were somewhat confident of the transition. In other sectors such as the Financial and Insurance, results demonstrate that taxpayers who did not use an agent indicated that they were fairly confident.

No data were available for respondents who used an agent. In addition, professional, scientist, and technical services suggest that taxpayers in this sector who did not use the services of an agent indicated that they were somewhat confident. No data were available in this study for respondents who did not use an agent. The finding for the Construction sector suggests that respondents who used the services of an agent were fairly confident with transitioning to MTD. For those who did not use the services of an agent predictors of non-compliance markers indicated that an average taxpayers slightly confidence in this sector. Furthermore, Administration and Support services suggest that taxpayers demonstrated average confident level indicated that taxpayers who did not use the services of an agent were slightly confident with compliance markers in this sector. No data were available for those that did not use an agent, due to sample sizes. Lastly, Art, Entertainment, and Recreation suggest respondents who did not use the services of an agent in this sector revealed that taxpayers on average lay between not confident at all and slightly confident. No data were available for those who used accountants in this sector due to sample restrictions. To further test the validity of the above results Kruskal Wallis Hypothesis test was also conducted.

Test of normality for taxpayers without accountants

To assess the type of test most suitable to ascertain the differences with respect to their beliefs about MTD impact on taxpayers categorised by organisational status a Shapiro-Wilk test of normality was performed for the two groups separately, these both indicated that the data for the two groups differed significantly from normality.

For taxpayers who were Agriculture, Forestry and Fishing manufacturers S-W statistic = 0.677, p <.001 (df=12). For Construction S-W statistic = 0.876, p<.003 (df =28), Motor trade S-W statistic = 0.960, p <.0.820 (df=6) , Transport and Storage S-W statistic = 0.886, p <.0.39 (df=17), Financial and Insurance S-W statistic = 0.606, p <.000 (df=8), Professional and Scientific S-W statistic = 0.496, p <.000 (df=6) Administration and Support Services S-W statistic = 0.634, p <.000 (df=8) Art Entertainment and recreation S-W statistic = 0.769, p <.004 (df=12) Table 4.

Hypothesis test

The results of the statistical hypothesis test results demonstrate that the Kruskal Wallis test with accountants (Table 5) showed a statistically significant difference in mean overall confidence across types of industry h, =55.82, df = 6, p ≤ 0.001 l two-tailed. The results demonstrated that the probability of obtaining a test statistic of 55.815 with 6 degrees of freedom (7-1), the statistical significance level is less than p=0.001. The result of the experiment therefore proves that there is a difference between the groups and therefore the null hypothesis is rejected (Table 5).

Additionally, Kruskal Wallis test without accountants (Table 6) showed a statistically significant difference in mean overall confidence across types of industry h,= 73.572, df = 10, p=<.001 two tailed.

The results demonstrated that the probability of obtaining a test statistic of 73.572.815 with 10 degrees of freedom (11-1), the statistical significance level is less than p=0.001.

The result of the experiment therefore proves that there is a difference between the groups and therefore the null hypothesis is rejected (Table 7).

These findings support the notion that a transition to MTD is industry sensitive and therefore any reform must consider the circumstances of the industry and its taxpayers. The rollout of MTD will need to supported by accounting/other practitioners. This study supports that tax payers transitioning to MTD who employ the services of an accountant are confident in the initiative. This resonates well with other research findings conducted by Paul (2020) that suggests that HMRC review the implementation to date before proceeding with full MTD rollout. A significant factor in confidence in compliance promotion would be that successful tax reform is one in which can be defined as one which the aims and objectives of the reforms are achieved by the government. Tax reforms need not seem difficult to achieve. Brooks and Noble (1996) describe an efficient and effective tax system as a system that does not distort economic decision-making and that cost of compliance and administration are kept to a minimum. A tax system should not deter incentives to work, innovate, save, and take risks and should be in line with the macro-economic policy. History has shown us that, for a tax system to survive it must be equitable.

It is interesting to note that the reform of a tax system may appear as a systematically easy process, but the desired results and outcomes have been proven to frequently fail. 

From this standpoint therefore a ‘good dose of local knowledge’ gives any proposed tax reform the level of knowledge that would provide relevant information for tax administration to implement, control, and monitor the transition to Making Tax Digital. The findings of this study confirm other recent studies such as the Institute of fiscal studies’ report 2019: asserts that among those taxpayers who have self-employment income (43% of all self-assessment taxpayers), non-compliance is highest among those in the construction, transport, and hospitality sectors. In these sectors, around 60% of taxpayers were noncompliant. In revenue terms, non-compliant taxpayers in hospitality owe by far the most, at an average of almost £4,500. Across other industries, the amount owed varies between £2,500 and £3,200. Taxpayers in both hospitality and transport under-reported the largest shares of the total tax they owed, at 54% in both cases.

It is recommended that future study should focus on a study of the real cost of compliance based on the actual hour’s taxpayers spend on preparing and filing quarterly self-assessments. Additionally, a study that measures the potential saving of tax losses due to errors because of the new making tax digital framework should be done.

The author has not declared any conflict of interests.