Company owners bogged down with tax administration

Small business owners are losing around 12 days a year keeping on top of their tax administration at a cost of half a billion pounds per year, research finds.

A study by the Federation of Small Businesses (FSB) shows that half of small companies spend between two and eight hours every month understanding, calculating and completing tax forms.

A further 11 per cent spend between two and six days per month, hindering their efforts to grow their businesses, according to the lobbying group.

Related: Ways companies can keep a lean tax bill

More than three quarters (77 per cent) say they spend up to £5,000 in addition to their tax bill paying professionals and for software so they can keep up to date with their latest obligations.

Around two thirds of the survey respondents estimate an annual cost of £3,651 spent on tax obligations – accumulatively this means a minimum of £490 million per year is spent in additional costs.

Almost a third (30 per cent) of firms say that cash flow problems have prevented them from paying their taxes on time, while one in five (19 per cent) say that difficulty understanding what is required or confusion over payment dates has meant they’ve paid late.

The FSB has long called for a simpler taxation system for small firms making it easier to deal with and less time-consuming as well as encouraging enterprise and growth.

The organisation is now calling for the government and the Office for Tax Simplification to build on the cash-based accounting system through creating an ‘enterprise tax’ system which would match the lower corporation tax band of £300,000.

The business group believes extending the current system to this level would lead to a more efficient system meaning more firms will be compliant. It would also mean small firms spend less time dealing with their tax commitments and reduce their considerable outgoings on tax advice.

FSB national chairman John Allan says, ‘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.’

Further reading on tax

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Tax & Vat

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