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SMEs face billions in tax compliance costs

UK small and medium-sized businesses (SMEs) pay almost £10 billion in tax compliance costs each year, according to research by the Association of Accounting Technicians (AAT).

The survey of 500 businesses reveals that smaller companies spend £9.9 billion on complying with business taxes each year. This compares to the £100 million annual bill faced by large companies.

The average SME spends £4,376 each year complying with taxes, less than half of the £8,907 bill faced by large companies. SMEs also spend less time (2 hours a week) working on compliance than large firms (6 hours a week).

Tax compliance often has a greater impact on SMEs due to their comparative lack of resources. For example, the majority of SMEs have less than 5 employees, while large companies have more than 250. This means that proportionally SMEs face greater economic cost.

Small business owners say they would rather invest the money back into their business than spend it on tax compliance:

  • 1 in 3 would put more money into marketing their businesses
  • 10% would use it to recruit more staff
  • 10% would increase their research and development budget.

SME owners think the tax system is complicated and requires too much time to navigate. 80% of respondents believe the system is overly complex, and 70% think it takes too long to comply with taxes.

The AAT has published recommendations that would simplify the tax system for SMEs which include:

  • merging income tax and national insurance
  • simplifying tax bands and thresholds
  • reducing the amount of rules and reliefs to make the system easier to understand
  • making government information for businesses and individuals clearer.

Brian Palmer, tax policy adviser at the AAT, said:

"A simpler system would allow more people to file their own returns, taking control of their own tax planning and diminish the significant cost some, particularly micro and small businesses, encounter. It would also limit the various different interpretations that can lead to loophole tax evasion schemes. This will enable the UK to take the lead in having a simpler and more business-friendly tax system."

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