'SMEs face higher tax compliance costs'

Monday 2 February 2015

Contractors, limited companies and sole traders certainly get more take home pay than employees for specific jobs. However, they may be subject to proportionately higher compliance costs.

This last point is according to a survey from the Association of Accounting Technicians (AAT), which argues that UK small and medium-sized enterprises (SMEs) bear the brunt of tax compliance.

It was claimed that SMEs currently spend £9.9 billion on tax compliance every year, where as larger businesses pay £100 million in total. However, it is unclear why this is or whether the survey had accounted for tax avoidance, such as that seen previously by companies such as Amazon, Google and Starbucks.

In response to the costs that small businesses face, the AAT said that it would help if the tax system was simplified. Chief executive of AAT Mike Farrar said: "SMEs are the backbone of British businesses but some are being weakened by a £10bn tax burden. 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.

"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."

The survey claims that the UK tax system makes it more difficult for small businesses to grow because they have fewer resources to deal with the tax burden.

It says that SMEs have to pay an average of £4,376 on tax complaince. For large businesses, however, this figure rises considerably to £8,907. But AAT says that because SMEs tend to have a much lower headcount, the cost is disproportionate.

The survey claimed that SMEs also spend close to two hours each week on tax compliance. Although this is a third of the time that larger businesses spend on it, the AAT said that they cost to businesses is generally higher for SMEs because of their lower headcount.

Brookson reminded SMEs that while the tax system can be tricky, they should make sure they are taking advantage of all the tax breaks that are available to them.

Matt Fryer, compliance manager at Brookson Ltd, said: "It has always been more difficult for businesses who are just starting out anywhere. However, in the UK there are a number of tax breaks available to businesses that make the compliance burden easier to manage. Also, companies should always be vigilant in making sure they are paying the right amount of tax for them. It's best to use bespoke contractor accountancy services to help work this out, they will also remove the burden of having to make time to take care of tax."

When AAT surveyed its own members, it found that 80 per cent believe the tax system is too complicated and that the areas that need to be simplified include tax relief, VAT, corporation tax, capital gains tax and income tax.

By Victoria McDonnell

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