By Daniel Hunter
The UK tax system is costing businesses up to £10bn in hidden costs a year with small and medium-sized enterprises (SMEs) bearing the majority of the burden, according to new research by the Association of Accounting Technicians (AAT).
Ahead of HMRC’s end-of-the-month self-assessment deadline, AAT found that SMEs currently spend approximately £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 plus large businesses pay on average. However, whilst 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.
The AAT said this can also be clearly seen in the amount of time per week businesses spend on tax compliance. The average SME spends up to two hours per week compared to the six hours of an average large business. Whilst 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.
Mark Farrar, AAT, Chief Executive, 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% 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.”
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