A new report by the Federation of Small Businesses (FSB) has revealed the huge burden of tax compliance on small businesses.
• The cost of tax compliance to the small business community amounts to nearly £25 billion per year, according to a new FSB report
• Small business owners spend an average of 44 hours per year on tax admin, while three in five say dealing with HMRC has caused their personal stress levels to rise
• FSB is calling for the cost of tax compliance to be lowered by a third, a time limit to be set on tax investigations, and for HMRC to speed up replies to customer queries.
Tax compliance costs small businesses nearly £25 billion a year, while three in five small business owners report that dealing with HMRC has increased their personal stress.
The findings, from a survey of over 1,400 small business owners, come from a new report by the Federation of Small Businesses (FSB), Taking a Toll: Small businesses and the cost of tax compliance, published today.
The report tallies up the demands – in terms of stress and time, as well as the financial costs – levied upon small business owners when they engage with the tax system.
These costs fall not just on small business owners; by holding back productivity and reducing the time and funding small firms have for investment, they are also hampering overall economic growth.
The average small firm spends £4,500 and 44 hours a year on tax compliance, according to the research. These annual totals could include time spent trying to contact HMRC, the cost of staff time used to manage compliance, and the price of software subscriptions and/or an external accountant, among other outlays.
Poor levels of customer service from HMRC are a recurring theme within the report, making tax compliance, already a demanding task, even more difficult and stressful, and using up time that would be far better spent developing business operations.
More than half (52%) of small firms find HMRC difficult to contact. The telephone was the most popular method of communication with the tax authority, used by over two thirds (68%), but only a quarter (23%) of that group rated their experience of dealing with HMRC over the phone as good.
Given that, it is not surprising that three in five small business owners (60%) say that dealing with HMRC has raised their personal stress levels.
HMRC’s ongoing Making Tax Digital (MTD) programme, which aims to move businesses over to filing their taxes digitally, will be expanding its net as of April next year. After that date, all businesses with turnover above £50,000 will be required to have moved over to MTD for income tax self-assessment, while those with turnover between £30,000-£50,000 will have until April 2027 to make the switch.
Despite this looming deadline, over a quarter of small firms (27%) who will be caught up in MTD eligibility say they do not know when they plan to adopt MTD-compatible software, driving concerns of a digital gap.
Tina McKenzie, FSB’s Policy Chair, said: “Tax compliance is far from a niche issue – it affects all five and a half million small businesses in the UK, costing them £4,500 and 44 hours a year each on average. Collectively, that adds up to an annual total cost to the small business community of nearly £25 billion and over 240 million hours.”
“This is money and time that could be far, far better spent on building up their business, and the overall cost to the economy in terms of lost growth and wasted productivity is enormous.”
“Given the challenges facing the economy, and the need for growth, reducing the burden placed on small firms by tax compliance must be a priority – something the Government has recognised as a priority for other regulators. HMRC should be included in the Government’s drive to make regulation better support growth.”