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Reduce the burden of tax administration for small business

New research by the Federation of Small Businesses (FSB) has found that the UK’s small business community is struggling under the burden of tax administration.

Half of the small companies questioned spend between two to eight hours per month understanding, calculating and completing tax forms.  A further 11% of respondents said this takes them between two and six days during the month – valuable time which could be devoted to growing the business.

Clearly, smaller businesses have fewer resources to deal with the issues and are therefore forced to seek professional help to keep their tax affairs in order.  More than three quarters (77pc) of those surveyed say they spend up to £5,000 – in addition to their tax bill – paying professionals or buying software so they can keep up to date with their obligations.  The FSB estimates that the entire UK small business sector could be spending a minimum of £490m every year on additional costs.

Prior to every Budget, or so it seems, the Chancellor is urged to make things easier for small business and often minor tinkering is the best we get.  Admittedly, a review was undertaken by the Office of Tax Simplification (OTS) prior to the last Budget, and George Osborne announced a helpful relaxation in reporting accounts for businesses with a turnover below the VAT threshold.  Yet a proposal to claim fixed rate expenditure rather than keep receipts for every penny spent was watered down considerably by the time it was launched.

There remains much to be done.  Why is a small manufacturing company potentially subject to all the same tax rules as the largest multinational?  Indeed, additional anti-avoidance legislation can apply only to the smaller company.

If the Government is serious about stimulating small business growth, streamlining tax administration must be a priority.  Reforms that incentivise growth by freeing up time and money to invest in planning and expansion are required.  It’s time to consider a radical overhaul to the tax system, to reduce the requirements under PAYE and VAT and to introduce a single registration process for VAT, PAYE and business tax.  We need to return to the days when HMRC’s inspectors understood, and were responsive to, the particular circumstances and challenges that businesses faced.

All of this comes at a time when the tax system appears to favour large companies.  Plans to clamp down on tax avoidance, for example, fall short in several areas.  Major retailers continue to set up shop in tax-favoured countries to deliberately undercut small shops by exploiting a VAT loophole.

The economy appears to be starting to pick-up and it is the UK’s small businesses that will drive the growth and create jobs.  Creating a better, simplified tax system will free up time for businesses and will give them the time to grow and contribute further to the UK’s recovery.