UK tax system costing SMEs £500 million a year in administration fees

The UK tax system and the various issues associated with dealing with it are costing the UK’s SMEs half a billion pounds a year, according to the latest research.


According to the Federation of Small Businesses (FSB), business owners spend an average of 12 working days a year dealing with tax-related matters.


This includes sorting all the necessary paperwork and calculating tax bills – all time that could be used for expanding the business or focusing on necessary restructuring efforts.


More than 75% of firms informed the FSB that they spent up to £5,000 a year on upgrading software and paying professionals to keep up with evolving tax rules.


The true cost of administration


As a result, the FSB estimates that around £500 million is devoted each year to the administration of this service.


John Allan, chairman of the FSB, said: "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.


 “There have been long-running issues with complex tax statuses if you're a sole trader or running an incorporated business. 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.”


Half of respondents said they take between two and eight hours a month to meet their tax obligations. Although one in five said they were forced to pay late as a result of not properly understanding the rules.


One way of solving this problem could be for the government to consider a simpler tax system which would reduce the burden on start-up businesses and those still in the early stages.


This should provide them with ample opportunity to focus on their development which would in turn drive the economy.


By Phil Smith


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