The hidden tax costs for smaller businesses

UK businesses are paying up to £10bn in hidden tax costs a year with small and medium-sized enterprises (SMEs) bearing the majority of the burden.

The Association of Accounting Technicians (AAT) canvassed the views of 500 businesses to discover the cost of tax compliance as the self-assessment deadline fast approaches.

Research found on average, the UK’s SMEs incur £4,376 in tax compliance costs, just under half the £8,907 large businesses typically pay.

While the average tax burden for SMEs is lower, most have no more than four employees compared to the 250 or more found in large businesses. As such, the impact on SMEs is much greater.

The AAT said this can also be clearly seen in the amount of time per week businesses spend on tax compliance.

The average SME spends up to two hours per week compared to the six hours of an average large business. Whilst the SME total is three times less, the cost to the business itself, is proportionately higher due to their lower head count.

The AAT has called for the unification of national insurance contributions and income tax as well a reduction in the number of tax reliefs and rules in order to aid simplification.

AAT chief executive Mark Farrar said: “SMEs are the backbone of British businesses but some are being weakened by a £10bn tax burden. It is a strong indicator of just how hard dealing with tax can be when 80 per cent of our members, experts at navigating through the intricacies of tax compliance, state that the UK tax system is too complicated.

“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 business and hiring more staff – a vital component for the UK’s economic recovery.”

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