Just 4 per cent of businesses have signed up for the government’s flagship Making Tax Digital policy to get small businesses to file VAT returns online.

Making Tax Digital (MTD), which comes into effect on April 1 – just three days after Britain is due to leave the EU – will affect more than 1m companies when it comes into force in less than six weeks.

Firms that earn more than £85,000 will be required to file their VAT returns online.

HM Revenue & Customs launched a pilot in October and invited more than half a million businesses to take part.

However, only 20,000 businesses have signed up to the pilot so far.

And one third of businesses have either not prepared for MTD or are unaware of its introduction, HMRC told the Daily Telegraph.

HMRC told Growth Business that thousands of companies are now signing up to the pilot every day, ensuring a smooth launch in April, when it is estimated that 1.15 million individuals and small firms must comply with the new regime.

The Federation of Small Businesses predicts that Making Tax Digital could cost businesses almost £3,000 a year. (HMRC puts the cost at much lower, just £43 a year plus a one-off transition cost of £109.)

Meanwhile, auditor KPMG has fond that 64 per cent of companies brought into Making Tax Digital say they need more support from the authorities.

One in five traders told KPMG that the changes offered no benefit to their company, while 5 per cent thought that the additional rules and costs would damage their business.

Although HMRC says that free accounting software is available and it is preparing a price-comparison webpage, sceptics think the real winners of MTC will be accounting software vendors.

Mike Cherry of the FSB has pointed out that there is no guarantee any software solution will remain free in perpetuity, and that the stress of swapping between providers just adds to the stress of entrepreneurs.