Ahead of HMRC’s self-assessment deadline, new research by AAT unveils the cost of compliance for UK business. It found that SMEs currently spend a huge £9.9bn each year on tax compliance compared to the £100m that larger firms pay.
On average, each of the UK’s 2.25m SMEs incurs £4,376 in tax compliance costs, just under half the £8,907 each of the 9,000+ large businesses pay on average.
However, while the average tax burden for SMEs is lower, the vast majority (1.7m) of these enterprises have no more than four employees compared to the 250+ employees found in large businesses. This means that despite a lower headline cost proportionately the impact is much higher on SMEs.
“SMEs are the backbone of British businesses but some are being weakened by a £10bn tax burden,” says Mark Farrar, AAT chief executive.
“It is a strong indicator of just how hard dealing with tax can be when 80 per cent of our members, experts at navigating through the intricacies of tax compliance, state that the UK tax system is too complicated.”
The average SME spends up to two hours per week compared to the six hours of an average large business. While the SME total is three times less, the cost to the business itself, is proportionately higher due to their lower head count.
This highlights how, with their limited resources, SMEs bear a higher proportion of the burden in meeting their tax compliance obligations. The impact on the economic cost is also larger due to SMEs compromising the majority of businesses in the UK.
Seven out of 10 SMEs said that far too much time is required to deal with tax issues. The same number also stated that the UK tax system is too complicated.
“Making the tax system simpler could help to lift this extraordinary weight, diminishing the costs that SMEs face. This would give SMEs the space they need to invest in growing their business and hiring more staff – a vital component for the UK’s economic recovery,” adds Farrar.
Businesses’ view of the additional consequences of the current tax system are that it creates an uneven playing field between larger and smaller enterprises and it also makes it harder for SMEs to compete in the global market place.
The tax-compliance burden on SMEs could also significantly affect the UK’s economic growth. A third of SMEs believed that the money spent on tax compliance would be better spent on sales and marketing to enable them to grow their businesses.
Over 10 per cent said that they would hire new staff, helping the Prime Minster to come ever closer to achieving his full employment target, and 10 per cent said they would invest in R&D, driving their business forward through innovation.
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