Collectively, small businesses are losing £25 billion a year to tax compliance, and this figure does not include the 300 million working hours spent on preparing and filing records. This is according to a new report by the Federation of Small Businesses, FSB.
They say that small firms are each spending an average of £4,100 and 52 hours a year on tax compliance.
What’s more, the cost is even higher for those already in the Making Tax Digital (MTD) programme at £4,562 compared to £2,960 for those yet to migrate to MTD. If you haven’t heard of Making Tax Digital, it is a flagship government initiative designed to ensure it is easy for everyone to pay their taxes by forcing participants to do so online at regular intervals.
Those in scope of MTD must purchase compatible software, subscriptions for which have significantly added to compliance costs. There are concerns that these costs will grow further as the initiative is extended to cover more taxes.
Seven in ten (70%) small businesses have made the MTD switch. Among them, a similar proportion (71%) say that the move has resulted in increased costs and time lost to learning new processes.
When asked to identify desired tax reliefs that would assist growth, more than a third (34%) cite “a reduction in National Insurance Contributions”.
Rishi Sunak is also asked to consider the report’s recommendations in his forthcoming budget, including:
- Ensuring the Government takes a stand where MTD is concerned to prevent unfair profit-seeking behaviour among software providers, with the Competition and Markets Authority intervening if necessary;
- Installing an MTD feature which nudges businesses towards relevant tax reliefs and investment incentives as too many people are unaware of their entitlements;
- Increasing the VAT turnover registration threshold, which has not moved in-line with inflation, to encourage those bunching beneath the £85,000 turnover point to expand whilst adopting the Office for Tax Simplification’s proposals for a smoothing mechanism;
- Increasing the Employment Allowance from £4,000 to £5,000 to help firms recruit, retain and retrain more staff as furlough ends and operating costs rise.