Small firms struggle with UK tax laws

Three quarters find it difficult to find information about regulations

A lack of financial experience, one of the world’s most complex tax systems and a lack of clarity from the government are causing small firms to struggle with tax law, say the AAT. Cash-strapped small businesses are losing out on the chance to defer a potential £7.7bn of tax payments due to poor finance skills and a failure to seek out professional advice.

New research for the AAT, the professional education and membership body for accounting staff, found that an unnecessarily complex tax regime and a lack of finance training is compounding the impact of the recession, at a time when this sector, considered the ‘backbone’ of the economy, needs to make every penny count.

Common mistakes which cost firms cash include incurring fines for late filing of accounts, failing to claim Business Rate Relief and ignorance of opportunities such as the ‘Time to Pay’ scheme, which allows those companies unable to pay their tax bill to spread payments.

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 5pc surcharge if they are three months late in paying.

238,699 British companies filed their accounts late in 2007, an increase of 25pc 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 5pc 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.

There is still some ignorance about the ‘Time to Pay’ scheme, which was introduced in November 2008 and is administered by HMRC Business Payment Support Service. Only 60,000 businesses, out of a potential 4.7m, have arranged to spread their tax burden with HMRC.

A 2007 survey by HBOS, found that 75pc of small businesses were run by directors with no financial training and 55pc of SME business owners, with sole responsibility for financial matters within their firm did so without any form of external professional financial assistance.