The association for independent accountants and lawyers found that 65% of firms still do not use accounting software, despite HMRC plans to make all businesses file tax returns electronically every three months from next year.
According to the UK200Group, the 22% of SMEs still used to manual record keeping will need to train a member of staff to move data into a new software system before the plan is launched in 2018.
Moreover, 27% of SMEs use basic computer programmes such as spreadsheets for bookkeeping. They will also need to adopt a full accounting package to make them compatible with the Revenue’s plans, the group said.
The study also found that 16% of business owners do nothing to record transactions and their accountant fills in the details before their annual tax return. The UK200 Group called this the “shoebox method”.
Richard McNeilly, chair of the UK200Group digitalisation taskforce, said: "The shoebox method users will have to learn how to keep records, invest in software and then spend time inputting the data they collect into it.
“Making Tax Digital represents the single most significant change to the UK’s system of taxation in recent times, and many of our smaller business clients are simply not ready for it.
“If the Revenue stays committed to having businesses report and pay tax digitally by 2018, small firms have only a short time to update their systems.”
Last week, research carried out by Thomson Reuters found that 87% of UK accountants felt that they needed more information about MTD, and 73% said the plan should be delayed. Half of them (51%) still haven’t spoken to clients about MTD.
Almost half (46%) of accountants expected the cost to their individual SME clients would be between £200-£500, 27% thought between £500-£1,000 and 9% thought more than £1,000.
Earlier this month, the chairman of the Treasury Committee Andrew Tyrie wrote to Jane Ellison, the financial secretary to the Treasury, and Mike Cherry, chairman of the Federation of Small Businesses (FSB), highlighting the discrepancies between their estimates for the cost of digital record keeping and reporting.
According to the Treasury’s estimates, the transitional costs will be £280 per business over the period 2017-18 to 2020-21.
However, the FSB has claimed that the costs will amount to £2,770 per year per business.