The taxman’s offerings of simpler national insurance rules for the self-employed and easier to read manuals on his website can’t come soon enough, if fresh ‘tax admin’ figures are anything to go by.
Released by the Federation of Small Businesses, the figures show that the owners of the smallest businesses have to spend up to 12 days a year solely to keep on top of their tax administration.
In fact, understanding, calculating and completing tax forms absorbs between two and eight hours each month for half of the owners, while 11% lose up to six days a month doing the same tasks.
On top of the time commitment, which the FSB pointed out results in fewer hours doing business, the owners tend to spend up to £5,000 on third-party help to keep up-to-date with their obligations.
Such help is invariably in the shape of a professional accountant or tax-focussed software, the costs of which are obviously in addition to the owners’ tax bill, the federation said.
It added that, on an annual basis, two-thirds of the businesses estimate they fork out £3,651 on their tax obligations – and accumulatively in the UK, this means a minimum of £490m a year is spent in extra costs.
Perhaps more worryingly, almost a third of the owners said that cash-flow problems have prevented them from paying their taxes on time, while one in five cited difficulty understanding what is required to have led to missing payment deadlines.
“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,” reflected FSB’s chairman John Allan.
“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.”
The solution, believes the federation, is for the government and the Office of Tax Simplification to build on the cash-based accounting system through creating an ‘enterprise tax’ system which would match the lower corporate tax band of £300,000.
The group argues that extending the current system to this threshold would lead to a more efficient system, meaning “more firms will be compliant.” It also says it would mean small firms would spend less time dealing with their tax commitments, so their considerable outgoings on tax advice could be reduced.
explained: “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.”