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Small businesses ‘face £10bn tax compliance bill’

Small businesses are being placed at a competitive disadvantage as a result of the high cost of complying with UK tax legislation, a new report has suggested.

The study, conducted by the Association of Accounting Technicians (AAT), revealed that the growth of many small and medium-sized enterprises (SMEs) is being compromised because of the burden of compliance.

According to the research, SMEs spend around £9.9bn each year on tax compliance, with a single SME spending an average total of £4,376, representing just under 50% of the costs incurred by its larger counterparts.

However, smaller businesses often lack the necessary resources to deal with tax compliance, with the majority of SMEs only employing a maximum of four members of staff.

In addition, 80% of AAT members reported that the tax system is time-consuming and overly complex, with many suggesting that it places small businesses at a disadvantage both within the UK and globally.

Commenting on the report, chief executive of the 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 business and hiring more staff – a vital component for the UK’s economic recovery’.

Separately, a new policy paper from the Institute of Directors has suggested that taxes which raise less than £5bn a year should be challenged annually, with a view to either repealing them or merging them with other taxes. Some of the taxes that would be subject to such a measure would include stamp duty on shares, air passenger duty, capital gains tax and inheritance tax.