As the owner or operator of a small business, there is one certainty … taxes. And with tax season upon us, you know about the late hours and lost productivity as you, and probably several of your key employees, struggle to wade through a complex tax system.
A recent report by the AAT, the leading professional education and membership body for accounting staff, found that many small businesses are struggling with UK tax laws.
Among the reasons the research cites are:
1. A lack of financial experience
2. One of the world’s most complex tax systems
3. A lack of clarity from the government
The failure to accurately estimate
their tax payments means that
cash-strapped businesses are losing out on the chance to defer a potential £7.7bn of tax payments.
And with an economy that is still feeling the impact of the recession, it’s vital that you make the most of every penny.
Common mistakes which cost firms cash include:
• Incurring fines for late filing of accounts,
• Failing to claim Business Rate Relief
• Ignorance of opportunities such as the ‘Time to Pay’ scheme, which allows those companies unable to pay their tax bill to spread payments.
Late Filing of Accounts
238,699 British companies filed their accounts late in 2007, an increase of 25% since 2003, and the trend is expected to continue in 2009 as firms struggle in a recessionary climate. Fines for late filing increased dramatically in January 2009, with companies now being charged £150 for forms submitted up to four weeks late, or £375 if this period extends to three months. Small businesses also have to pay a 5% surcharge if they are three months late in paying. In addition, fines automatically double if firms are found to have submitted the previous year’s returns late. Late filing costs for 2007/8 exceed £53m and are likely to increase 2008/9.
Business Rate Relief
Business rates are the third largest cost to SMEs per annum and rate relief could be worth up to £1200 per firm. Despite this, over £400m of Business Rates Relief goes unclaimed each year, in large part because firms are not aware of the opportunity.
Small businesses also have to pay a 5% surcharge if they are three months late in paying
Lack of Awareness of “Time to Pay” Program
Ignorance of the ‘Time to Pay’ scheme, which was introduced in November 2008 and is administered by HMRC Business Payment Support Service, adds to the loss. Only 60,000 businesses, out of a potential 4.7m, have arranged to spread their tax burden with HMRC.
“It’s not surprising that business owners are struggling when Britain’s is one of the most complicated tax systems in the world. Over 500 pages of new tax law are created, each year, and at 10,000 pages and 5.8kg, the standard tax handbook – Tolley’s – has almost doubled since 2001,” said Tom Kelman, Director of Corporate Resources at the AAT.
A 2007 survey by HBOS, found that 75% of small businesses were run by directors with no financial training and 55% of SME business owners, with sole responsibility for financial matters within their firm did so without any form of external professional financial assistance. These findings were echoed by the Anderson review (Jan. 2009), which found that three quarters of small businesses find it difficult to find information about regulations that apply to their business, but as many as half do not seek advice.
Kelman continued: “It really is a false economy for business owners not to get professional help with their finances, or to get some financial training themselves. The costs incurred by basic errors or ignorance could have a major impact and could make or break a small business at this time.”
“There also needs to be greater clarity. There’s so much support and guidance available to businesses but it needs to be more clearly signposted and – in the case of the tax deferral ‘Time to Pay’ scheme – made easier to access. It’s in all our interests, if companies are to make the best use of their resources and be ready to grow once a recovery begins.”
If you think your small business may be missing out on the chance to lessen or defer your tax responsibilities, consider asking a question.