SMEs face billions in tax compliance costs

UK small and medium-sized businesses (SMEs) pay almost £10 billion in tax compliance costs each year, according to research by the Association of Accounting Technicians (AAT).

The survey of 500 businesses reveals that smaller companies spend £9.9 billion on complying with business taxes each year. This compares to the £100 million annual bill faced by large companies.

The average SME spends £4,376 each year complying with taxes, less than half of the £8,907 bill faced by large companies. SMEs also spend less time (2 hours a week) working on compliance than large firms (6 hours a week).

Tax compliance often has a greater impact on SMEs due to their comparative lack of resources. For example, the majority of SMEs have less than 5 employees, while large companies have more than 250. This means that proportionally SMEs face greater economic cost.

Small business owners say they would rather invest the money back into their business than spend it on tax compliance:

1 in 3 would put more money into marketing their businesses

10% would use it to recruit more staff

10% would increase their research and development budget.

SME owners think the tax system is complicated and requires too much time to navigate. 80% of respondents believe the system is overly complex, and 70% think it takes too long to comply with taxes.

The AAT has published recommendations that would simplify the tax system for SMEs which include:

merging income tax and national insurance

simplifying tax bands and thresholds

reducing the amount of rules and reliefs to make the system easier to understand

making government information for businesses and individuals clearer.

Nigel Holland said: 

“ In an ideal world a simpler tax system would exist, however this is not entirely possible in practice. The tax rules have developed over hundreds of years and are intended to address anti avoidance and unfairness. They have also been introduced to reflect the political beliefs of which ever political party was in power at the time. The main purpose of the tax system is to provide income for the Treasury. 

Wholesale change of the tax rules is unlikely and instead a piecemeal approach may be more appropriate. Each time there is a new proposal to change the tax rules, consideration should be given to how much this new legislation will ultimately cost the taxpayer and also how any new rules can reduce the complexity of the current system. 

At my firm we are successful in being able to reduce the cost our clients incur when they submit various HMRC returns such as self assessments, VAT returns, corporation tax returns, HMRC elections and PAYE submissions. We achieve this objective by employing specialised staff who are fully trained and can deal with these specialised areas in a professional manner. This then allows our clients the opportunity to spend more of their own time  running their business.

I am a firm believer in allowing a specialist to handle a job in which they are familiar rather than expect a business owner to be an expert in every field. Ultimately the business owner will incur larger costs and possibly penalties if they try to deal with tax compliance especially if they are not trained in this subject.”