In a study conducted by the FSB (Federation of Small Business), it was found that businesses spend £5,000 annually on tax compliance. As well as money, small businesses also lost out on three working weeks in making sure that they had their tax affairs in order. Small businesses are consistently losing time and money over tax payments which is why they are urging the government for a tax reform. The money being drained by tax compliance can be better spent on growing businesses.
Dealing with taxes can be more than just a headache for small business owners. In a recent survey by the FSB it was found that 46% of the respondents consider working out the relevant tax rates to be a challenge, and 40% of respondents also find exemptions difficult and confusing.
The three most time-consuming taxes that small businesses have to deal with are VAT (Value Added Tax), PAYE (Pay As You Earn) and NICs (National Insurance Contributions). These three taxes are responsible for draining on average 95 hours annually from small businesses. The time spent dealing with tax compliance could be costing businesses their future.
Mike Cherry, the FSB National Chairman commented: “Time and money spent by small businesses on navigating the tax system is time and money not spent on innovating, expanding and creating jobs. We hear a lot about the need to simplify the UK tax code. In fact, our priority should be simplification of the tax compliance process. Small firms by and large understand a tax like VAT, for example, but the sheer complexity of VAT administration means they spend 44 hours a year filing returns. It’s no wonder the majority end up shelling out for expert help.”
Taxes are difficult to deal with so business owners are having to hire specialists to deal with their taxes. Consequently, this is costing business thousands per year. More than three quarters (77%) of businesses said they had to resort to hiring a specialist. Hiring a specialist to ensure taxes are being paid correctly drains small businesses of funds that could be used better elsewhere.
Many small business owners believe that taxes are responsible for hindering their chances of growing their business. 47% of participants have deemed business rates as the main source of difficulty in business growth. Whereas, 44% of small businesses have found Employer NICs played a role in damaging their chances of growth. VAT was also to be blamed by 14% of small businesses.
Mike Cherry added: “The three working weeks and thousands of pounds a year that small firms lose to tax compliance is a huge drain on national productivity. That lost time and resource is the real issue, not the length of the tax code.
“The roll-out of Making Tax Digital needs to be seen as an opportunity to radically improve the small business user experience of HMRC. Done right, MTD could help streamline the process of small business tax compliance. 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.”