Research has shown that the average small business owner is spending £5,000 and an astonishing three working weeks on tax compliance every year. This has prompted representatives of small companies in the UK to demand reform.
Too many barriers
The Federation of Small Businesses (FSB) says that members are facing too many difficult and time-consuming hurdles when simply trying to settle taxes. More than half of the FSB’s members stated that they don’t fully understand which tax rates are required of them.
A complicated and overly-bureaucratic system has led to many taxes becoming very time-consuming to deal with. These include VAT (value added tax), PAYE (pay as you earn) and Employer NI (National Insurance) contributions.
The FSB has found that the average small company spends more than 95 working hours per year complying with these three tax demands.
Business rates impede progress
More than 1,000 small businesses were surveyed for the research, with around 50% of respondents citing business rates as prohibitive in terms of expansion. This tax on commercial property is slowing down growth and, in some cases, making it almost impossible.
The same number of respondents point towards corporation tax as also impeding growth. A similar number again cite Employer NICs as a barrier to expansion.
Simplification needed
The FSB’s national chairman, Mike Cherry, said: “Time and money spent by small businesses on navigating the tax system is time and money not spent on innovating, expanding and creating.”
He argues that although many people talk about the need to simplify the UK’s tax code, it’s actually compliance that needs to be made easier. While small businesses do understand taxes like VAT, the complexity of the system means they must send 44 hours every year filing returns.
Drain on productivity
Small businesses often feel they have to pay for expert help, which further increases the drain on their resources. The loss of three working weeks per small business, as well as the thousands of pounds that small companies lose every year just to administer compliance is a drain on productivity across the country.
The government says it wants to make it simpler for small businesses to pay their taxes and are introducing the Making Tax Digital policy. This will move tax compliance online, but the plans aren’t popular with everyone. There are complaints that the government isn’t giving companies enough time to prepare for such a massive overhaul.
Opportunity for improvement
If the rollout of the digitisation plan is done well it could help to streamline small business tax compliance, which could be very positive. Mr Cherry said: “Its success will hinge on a thorough user-testing and piloting period, significant improvements to HMRC’s user support channels and proper investment in the digital capabilities of small firms. It must remain voluntary for small businesses below the VAT threshold.”
The survey and research also showed that more than 50% of small businesses didn’t realise that tax relief schemes could save their company money. Local and central government should do more to make sure that every small business in the UK is fully aware of the help and reliefs available to them.
If you have any questions or concerns about tax compliance, contact the team at Turner Little here. We’d be happy to help.
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.
For more information, please contact us on 01904 783101.
