SMEs invest three working weeks a year on tax compliance

A new study, prepared by the Federation of Small Businesses (FSB), has found that the UK’s average small business spends nearly three working weeks every 12 months complying with tax rules.

This costs SMEs around £5,000 a year on average, according to the survey of 1,000 small businesses.

Of the challenges they face, around half (46 per cent) say determining the tax rates at which they are required to pay is most difficult, while a further 40 per cent say that reliefs and exemptions are too confusing.

Payroll functions, such as PAYE and National Insurance (NICs), and VAT are deemed the most time-consuming by SMEs, with the average small business estimating that it spends around 95 hours a year on these tasks.

Specialist professional advisers are used by 77 per cent of SMEs to ensure their taxes are paid correctly, with almost all choosing the services of a qualified accountant.

Of the issues they face, 47 per cent say business rates have made it harder to grow their firm, with a similar proportion saying Corporation Tax has had a similar effect. Meanwhile, 44 per cent said that their plans had been stifled by employers’ NICs.

Mike Cherry, FSB National Chairman, said: “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.”

When asked about changes to tax compliance, the majority (53 per cent) say the ability to pay in instalments would make the process less burdensome. Nearly half (52 per cent) also said that they would like an early estimation of their tax.

Of those asked, 40 per cent also said that the automation of tax calculations would be useful.

The Taxing Times report prepared by the FSB also revealed that 55 per cent of small firms are not aware of tax reliefs available to them, while 73 per cent had not heard of either the business rates relief offered to those based in enterprise zones or the enhanced capital allowance for clean technologies.

In comparison, 78 per cent were aware of, or had claimed, small business rates relief, while two thirds had used standard capital allowances. The majority (51 per cent) had also used the dividend allowance.

Mr Cherry added: “There are lots of useful tax reliefs out there but many small firms simply don’t know they exist or don’t have the expertise to access them.

“Lots of firms actually employ consultancies to help them apply for R&D tax credits, for example. When applications are complex, it is big firms, not time-strapped small business owners, which stand to gain.

“There needs to be a real push from local and central Government to ensure small firms are aware of all the reliefs available.”

Link: FSB Study