Small firms urge tax reform as they lose £5,000 a year to compliance, research shows

21/02/2018 News Team

The average UK small business spends £5,000 and three working weeks every year on tax compliance, according to a report from the Federation of Small Businesses (FSB). 

The report - Taxing Times - looks at obstacles facing small businesses when trying to pay taxes. Almost half (46 percent) say determining the tax rates at which they’re required to pay is a challenge. Four in ten (40 percent) find exemptions confusing.   

Value Added Tax (VAT), Pay As You Earn (PAYE) and Employer National Insurance Contributions (NICs) are identified as the most time-consuming taxes to handle. The average small business spends 95 hours a year complying with the three collectively.

Due to the complexity of the tax compliance process, more than three quarters (77 percent) of small firms pay a specialist to ensure their taxes are paid correctly. 

Almost half (47 percent) of small firms say business rates have made growing their firm more difficult. The same proportion say corporation tax has hampered expansion, with similar numbers stating that growth has been stifled by Employers NICs (44 percent). One in seven (14 percent) small firms say VAT has prevented expansion completely.     

When asked about changes that would reduce the tax compliance burden, the majority (53 percent) say the ability to pay in instalments would make the process more straightforward. A similar proportion (52 percent) would like to see an early estimation of their tax bill. Four in ten (40 percent) state that the automation of tax calculations would be useful.     

Taxing Times also reveals that the majority (55 percent) of small firms are not aware of tax reliefs available to them.

A number of reliefs have very low uptake among small firms, including the business rates relief offered to those based in Enterprise Zones. More than seven in ten (73 percent) have not made use of, or even heard of, this relief. The same proportion are not aware of the Enhanced Capital Allowance, which encourages investment in clean technologies.  

The most familiar tax reliefs to small firms are small business rates relief, which more than three quarters (78 percent) are aware of or have claimed, and standard capital allowances (66 percent). The dividend allowance (51 percent) is also popular among small businesses.  

The FSB offers not for profit advice, financial expertise and support for small businesses.

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