SMEs say tax regime is not a level playing field

Updated: Jun 2, 2019

Businesses believes that the UK tax system is fundamentally unfair, with a bias in favour of larger companies, and want more support to stay compliant with new requirements such as Making Tax Digital, according to research by the British Chambers of Commerce (BCC) .

The BCC survey of over 1,000 firms from across the UK found that nearly three-fifths (58%) of respondents think that the UK tax regime is unfair to businesses like theirs.

The findings largely signal concerns over how HMRC applies the tax rules to different types of firms.

Two-thirds (67%) of respondents do not believe that HMRC applies tax rules fairly across all sizes of business. Micro firms are more likely to have that view (70%) compared to their medium and large counterparts (59%).

Two thirds (64%) of companies disagree that HMRC applies tax rules fairly regardless of where the company is domiciled. Again, there is a difference in perception among small and larger firms (67% micro firms v 59% medium and large).

The results also found concerns over the quality of service provided by HMRC. Half of firms (49%) do not believe HMRC provides the support they need to be compliant. This figure is higher for micro firms (51%), compared to medium and larger firms (42%).

The BCC says many respondents expressed frustration that HMRC underestimated the time and money their small businesses spent trying to keep pace with regulatory burdens and the complexities of the system, and with new developments such as Making Tax Digital.

The business group is  calling on the government to improve HMRC’s service to business, by matching the level of investment in tax avoidance work with funding for support and advice to businesses. It says reducing the burden of compliance and improving processes for collecting tax would also improve the process for business.

The BCC is reiterating its call for the government to pledge to introduce no new input taxes and other significant costs on businesses for the remainder of this parliament.

Suren Thiru, BCC head of economics, said: ‘These results reflect a strong impression among businesses that the current UK tax regime isn’t a level playing field.

‘When it comes to compliance there is a tendency for HMRC to see smaller businesses as low hanging fruit and as a consequence they feel under the constant threat of being called out for getting things wrong in a tax system that has grown ever more complex. In contrast, action to tackle persistent compliance issues among a small minority of firms remains frustratingly slow.

‘There is also widespread disappointment over the escalating burden of up-front taxes and costs of doing business in the UK, particularly at this time of heightened uncertainty. This has proved to be tipping point for many smaller firms who typically operate on a tight cashflow.

‘HMRC must step up efforts to provide better support to smaller businesses to get their tax right, rather than simply pursuing and enforcing penalties.’