UK-based small and medium-sized enterprises are facing hidden costs of up to £10 billion every year, according to a study published by the Association of Accounting Technicians (AAT).
The report indicates that SMEs are facing most of the burden, spending around £9.9bn annually, while larger companies pay around £100m. The study was carried out just before the January deadline for the submission of online self assessment tax returns.
According to the figures collated by the AAT, there are around 2.25 million SMEs in the UK, each of them paying £4,376 in tax compliance costs. This is almost half the amount paid by the 9,000 larger companies in the UK, which averages at £8,907 each.
The average costs of tax compliance may be lower for UK SMEs, but 1.7m of the businesses have four or fewer employees, unlike the larger companies, which have 250 or more members of staff. This results in a greater impact on SMEs. Businesses likewise spend time each week on tax compliance, which also demonstrates the impact on smaller companies. Although larger companies spend an average of six hours a week on tax compliance, in contrast with the two hours spent by SMEs, the burden is far greater on smaller businesses.
The AAT has called for tax simplification, which will include uniting income tax and National Insurance contributions. The organisation has also called for fewer rules, and tax relief to make compliance far easier.
The chief executive of AAT, Mark Farrar, said:
“Making the tax system simpler could help to lift this extraordinary weight, diminishing the costs that SMEs face. This would give SMEs the space they need to invest in growing their businesses and hiring more staff – a vital component for the UK’s economic recovery.”
What are tax compliance costs?
The cost of tax compliance lies in completing and submitting tax returns, accounts management, recording transactions and much more. A ‘statutory tax burden’ is the cost of the taxes that are paid to the government to settle your tax liability.
Increased tax compliance costs often result in higher consumer prices and lower numbers of employees, which has an overall effect on the economy.
Outsourcing as a solution
Outsourcing to a professional can help to reduce the tax compliance costs, while leaving business owners free to deal with other aspects of the company. Time, manpower and money are the main costs of complying with tax regulations.
If you want to know how you can reduce the cost of tax compliance, please contact us here at the Accountancy Partnership.
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