Small firms splash out £25bn on tax compliance as HMRC accused of ‘poor service’
Small firms are set to stump up a combined £25bn on tax compliance this year, a leading industry body has said, as it accused HMRC of failing to answer phone calls or letters.
Calls for a vast reform of the UK’s tax system have come from leading think tanks and policymakers for several years.
But a fresh survey has now spelled out the costs – and stress levels – small business owners have been put under due to complex processes.
The Federation of Small Businesses (FSB) said that small business owners are racking up to 44 hours a year on tax admin..
Each business is also spending an average of £4,500 on tax compliance, the FSB’s survey of 1,400 owners revealed.
The main costs come from time spent on contacting the taxman and accountants charging high fees. The FSB said poor HMRC customer service was a “recurring theme” that contributed to lower productivity levels across small businesses.
“The imbalance of power between the typical small business and HMRC, with its power to investigate, levy penalties, and prosecute, is immense,” the report, titled ‘Taking a Toll’, said.
“Trying to engage with HMRC to obtain guidance or a response to an appeal can be immensely frustrating, with the tax authority often failing to answer telephone calls or letters in a timely manner.”
The majority of entrepreneurs told the FSB that dealing with HMRC has caused their stress levels to rise as fear of investigations and penalties leaves businesses unable to work efficiently.
HMRC’s plans to digitise the tax system are also falling under radar as over a quarter of eligible firms said they did not know about the new software getting rolled out.
It is not the first time HMRC has come under fire for its handling of calls.
Last year, it reversed a decision to suspend a key helpline on VAT and pay as your earn (PAYE) as it moves its systems online.
Then Chancellor Jeremy Hunt was among those who criticised the suspension.
The FSB’s policy chair Tina McKenzie said that tax problems affected all 5.5m small businesses in the UK.
“Given the challenges facing the economy, and the need for growth, reducing the burden placed on small firms by tax compliance must be a priority – something the Government has recognised as a priority for other regulators,” McKenzie said.
“HMRC should be included in the government’s drive to make regulation better support growth.”
Its recommendations include a loosening of regulations on tax investigations, such as the reduction of time HMRC can take on probing firms.
It also said that HMRC officers should be more “open and honest about mistakes”.
The government has set out to reform a number of regulators and state bodies in a bid to boost efficiency in public services. Treasury minister James Murray has been tasked with modernising HMRC’s services.
A HMRC spokesperson said: “The large majority of small businesses report a positive experience when dealing with us and Making Tax Digital is designed to slash the time spent on tax administration, giving self-employed taxpayers more time to grow their business.”
“Overall customer satisfaction stands at around 80 per cent and the funding settlement we’ve received means we’ll be able to meet our service standards in 2025-26.”