FSB: Small firms wasting time and money on tax admin

Monday 30 September 2013

Small firms spend around half a billion on tax admin every year, according to new research from the Federation of Small Business (FSB).

Furthermore, small business owners around the UK are losing around 12 days a year keeping on top of their tax administration.

According to research from the organisation, half of respondents spend between two and eight hours a month understanding, calculating and completing tax forms, while another 11 per cent allocate between two and six days to the task.

As a result, small business owners and contractors are spending valuable days that could be better used growing a business on tax administration.

Over three-quarters - or 77 per cent - of respondents admitted they spend up to £5,000 paying for professional assistance and software in order to help them keep up with the latest tax obligations. This is on top of the money already spent on their tax bills. In addition to this, around two-thirds of those who responded to the survey estimated an annual cost of £3,651 which goes on tax obligations.

When added up, this means a minimum for £490 million a year is spent on trying to keep up with the latest administrative legislation.

Almost 30 per cent of the businesses surveyed said that they have failed to pay their taxes on time in the past due to cash-flow problems, while one in five said the regulations are so complex that confusion over payment dates and other details has seen them pay late.

This research highlights the need for a simpler taxation system for small firms. According to the Federation of Small Businesses (FSB), cutting the red tape surrounding the taxation system would encourage enterprise and growth by making taxation for small businesses less daunting.

The FSB is now calling for the government and the Office for Tax Simplification to build on the cash-based accounting system through the creation of an ‘enterprise tax’ that would match the lower corporation tax band of £300,000.  

According to the organisation, this would lead to a more efficient system, helping more firms to achieve compliance, free up the time of smaller businesses and cut their significant outgoings on tax advice. The FSB believes that if this system was properly designed, it could remove the need for multiple systems such as IR35, sole trader and incorporation.

John Allan, the national chairman of the FSB, commented: "Small firms are losing a serious amount of time completing these forms and it's tantamount to money down the drain as they could spend that time growing their business. The economy is just starting to pick-up and it is the UK's army of small firms that will drive the growth and create jobs.”

The expert added that there have been “long-running issues” with complex tax statuses, whether it's an incorporated business or a sole trader in question.

“Creating one new tax system, removing the choice will make it simpler. It will free up time for businesses, it will give them the time to grow and contribute further to the prosperity of UK-plc,” he added.

By Victoria McDonnell

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