Small businesses currently spend an average of £5,000 and the equivalent of almost three working weeks getting their taxes in order.
The figures have been released by the Federation of Small Businesses (FSB). The group are calling for the simplification of the tax compliance service. They estimate that small firms spend an average of 95 hours every year to file their returns. That’s the equivalent of 12 eight-hour working days.
The FSB survey shows almost half of businesses struggle to calculate the rate of tax they should pay. Exemptions such as business rates relief for those in enterprise zones are believed to be confusing by two in five firms.
Mike Cherry, FSB National Chairman, said:
“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.
“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.
He goes on to say:
“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.
“Breaking down the process could also bring benefits. Giving firms an estimation of what tax bills will look like a few months before they’re due would help businesses to plan ahead. Equally, the ability to pay in instalments could make managing cash flow more straightforward. The easier taxes are to pay, the easier it will be for HMRC to collect revenue.”