HMRC red tape casts UK SMEs £25bn a year
UK small businesses are facing an annual tax compliance burden nearing £25 billion, according to recent findings by the Federation of Small Businesses (FSB).
This substantial figure encompasses expenses such as accounting fees, software subscriptions, and the significant time invested in administrative tasks.
On average, each small firm spends approximately £4,500 and 44 hours annually on tax-related activities, diverting resources from business growth and innovation.
The FSB attributes a significant portion of these costs to challenges in interacting with HM Revenue & Customs (HMRC).
Over half of small businesses report difficulties in contacting HMRC, with only 23% rating their telephone interactions as satisfactory.
This has led to increased stress levels among business owners and concerns about the efficiency of tax administration.
In response to these challenges, the FSB has proposed several reforms aimed at alleviating the tax compliance burden on small businesses. Key recommendations include:
- Setting a target to reduce business tax administration costs by a third by 2028.
- Imposing a duty of candour on HMRC officers to ensure transparency during tax investigations.
- Establishing time limits on the length of HMRC tax investigations to prevent prolonged inquiries.
- Reviewing the pricing of Making Tax Digital (MTD)-compliant software to prevent excessive costs for small businesses.
- Enforcing shorter response times for HMRC to address taxpayer queries, with performance outcomes published annually.
The National Audit Office (NAO) has also highlighted the growing complexity of the UK tax system, noting that administrative costs for HMRC have increased by £563 million between 2019-20 and 2023-24.
The NAO emphasizes the need for HMRC to better understand how changes to the tax system impact both administrative costs and the financial burden on taxpayers.
As the government continues to implement digital initiatives like MTD, ensuring that these systems are accessible and cost-effective for small businesses remains a critical concern.
The FSB’s findings underscore the importance of simplifying tax processes and improving HMRC’s customer service to support the UK’s small business sector effectively
