Small businesses need more help staying tax compliant, survey finds

Small businesses believe the UK tax system is fundamentally unfair and want more support to stay complaint, according to new research by the British Chambers of Commerce.

It comes in the same month that the Government’s Making Tax Digital strategy went live for most VAT-registered businesses with a taxable turnover of more than £85,000.

The survey of more than 1,000 firms across the UK revealed 58% think the UK tax regime is unfair to businesses like theirs and 67% don’t believe tax rules are fairly applied across all sizes of business. This view is held even more widely among the smallest companies in comparison to their larger counterparts.

Half of respondents said they do not feel HMRC provides the support they need to be compliant and feel the department underestimates the time and money that small businesses spend trying to keep pace with regulatory burdens and complexities of the system.

They say rises in upfront business taxes and costs, including the introduction of Making Tax Digital and changes to auto-enrolment, is adding to the administrative burden.

Making Tax Digital launched this April

Making Tax Digital is a key part of the Government’s plans to make it easier for individuals and businesses to get their tax right, with figures suggesting avoidable mistakes are costing the Exchequer over £9billion a year.

The new digital system is designed to improve accuracy and make it easier to account for tax using accounting software systems.

Making Tax Digital started with VAT this April, and most VAT-registered businesses (apart from a few special exceptions) are now required to keep digital records and use software to submit their VAT returns for periods that started from 1 April 2019.

The system is also being developed for other types of tax to follow in the future, such as income tax and corporation tax.

‘More support needed for small businesses’

Reflecting on the British Chambers of Commerce survey results, its head of economics, Suren Thiru, said: “These results reflect a strong impression among businesses that the current UK tax regime isn’t a level playing field.

“When it comes to compliance there is a tendency for HMRC to see smaller businesses as low hanging fruit and as a consequence they feel under the constant threat of being called out for getting things wrong in a tax system that has grown ever more complex.

“In contrast, action to tackle persistent compliance issues among a small minority of firms remains frustratingly slow. There is also widespread disappointment over the escalating burden of up-front taxes and costs of doing business in the UK, particularly at this time of heightened uncertainty. This has proved to be tipping point for many smaller firms who typically operate on a tight cashflow.

“HMRC must step up efforts to provide better support to smaller businesses to get their tax right. More also needs to be done to address the escalating burden of upfront costs and taxes to provide firms with much-needed headroom to get on and invest, train their staff, and compete on the global stage.”

More information about Making Tax Digital and who could be affected is available via the Government’s Making Tax Digital website.