The average UK small business spends £5,000 and three working weeks every year on tax compliance, according to research from the Federation of Small Businesses (FSB), which is calling for the system to be simplified.
The survey of over 1,000 small businesses found that almost half (46%) say determining the tax rates at which they are required to pay is a challenge, while 40% find exemptions confusing.
VAT, PAYE and employer national insurance contributions (NICs) are identified as the most time-consuming taxes to handle. The average small business spends 95 hours a year complying with the three collectively.
More than three quarters (77%) of small firms pay a specialist to ensure their taxes are paid correctly, with almost all opting for a qualified accountant.
Almost half (47%) of small firms say business rates have made growing their firm more difficult. The same proportion say corporation tax has hampered expansion, with similar numbers stating that growth has been stifled by employers’ NICs (44%).
One in seven (14%) small firms say VAT has prevented expansion completely.
When asked about changes that would reduce the tax compliance burden, the majority (53%) say the ability to pay in instalments would make the process more straightforward.
A similar proportion (52%) would like to see an early estimation of their tax bill. Four in ten (40%) state that the automation of tax calculations would be useful.
Mike Cherry, FSB national chairman, said: ‘We hear a lot about the need to simplify the UK tax code.
‘In fact, our priority should be simplification of the tax compliance process. Small firms by and large understand a tax like VAT, for example, but the sheer complexity of VAT administration means they spend 44 hours a year filing returns.
‘It’s no wonder the majority end up shelling out for expert help.’
A quarter of survey respondents (27%) currently seek online tax advice from HMRC and just 19% make telephone contact, with a number of businesses highlighting issues with response times.
Cherry said: ‘The rollout of making tax digital needs to be seen as an opportunity to radically improve the small business user experience of HMRC.’
The Taxing Times report also reveals that the majority (55%) of small firms are not aware of tax reliefs available to them. Most (73%) have not heard of either the business rates relief offered to those based in enterprise zones, or the enhanced capital allowance, which encourages investment in clean technologies.
The most familiar tax reliefs to small firms are small business rates relief, which more than three quarters (78%) are aware of or have claimed, and standard capital allowances (66%). The dividend allowance (51%) is also popular.
Cherry said: ‘There are lots of useful tax reliefs out there but many small firms simply don’t know they exist or don’t have the expertise to access them.
‘Lots of firms actually employ consultancies to help them apply for R&D tax credits, for example. When applications are complex, it’s big firms, not time-strapped small business owners, which stand to gain.
‘There needs to be a real push from local and central government to ensure small firms are aware of all the reliefs available.’