Software that will ensure that small businesses are ready to comply with Making Tax Digital legislation will set the average enterprise back £564.

Making Tax Digital (MTD) comes into place on April 1 and the Federation of Small Businesses estimate that half of VAT-registered businesses do not have the right software in place.

So the FSB is urging the chancellor to recommit to light-touch enforcement of MTD when he makes his spring statement on Wedesday.

More than a quarter of firms (27 per cent) have not started preparing for MTD while a further 23 per cent have received quotes for software but have yet to make a purchase.

FSB National Chairman Mike Cherry said: "We're only three weeks away from the roll-out of MTD and small businesses are clearly not prepared for it.

"That being the case, the Chancellor must double down on his commitment to light-touch enforcement when he delivers the Spring Statement on Wednesday.

"Small business owners shouldn't be punished for honest mistakes, made more likely by a rushed HMRC roll-out.

Small firms state that putting MTD-compliant software in place this year will cost £564 on average. Software fees come in the form of one-off charges or annual subscriptions.

The bigger the business, the higher the cost.

Those with a turnover between £500,001 - £1 million are set to be landed with a £872 bill for MTD-compliant software, on average.

For firms with a turnover of more than £1 million, that figure rises to £1,019.

"Promises were made that MTD compliance would be affordable," Cherry added.

"Now many firms are finding themselves on the hook for hundreds of pounds for software.

At a time when small business confidence is in the doldrums - and wages, auto-enrolment contributions and business rates are rising - more costs and admin burdens are the last thing they need.

"While we've worked hard to ensure our members are aware of MTD, firms are finding it far more difficult, time-consuming and expensive to become compliant than was predicted by HMRC - not least because of a cumbersome registration process.

Despite government claims that the initiative will make reporting easier only one in ten (10 per cent) small firms believe MTD will have a positive impact.

More than a third (36 per cent) believe it will have a negative effect.

The new research also highlights the importance of offline accounting methods to small firms.

Around four in ten (37 per cent) use paper invoices, while close to a third (29 per cent) use paper receipts and bank statements to keep track of their finances.

HMRC's own research indicates that one in five (19 per cent) firms that will be forced to comply with MTD on 1 April have never heard of it.