SMEs warned of £7 billion tax waste

According to a survey by a consumer advice site, small and medium sized businesses (SMEs) will waste more than £7 billion in unnecessary payments to the taxman this year.

This is because SMEs are not making better use of available tax allowances and business arrangements.

The three main areas where tax reliefs were being wasted were found to be:

1.      Incorporation

The number one area of tax wastage for SMEs is incorporation, which stands at more than £4.22 billion alone. Changing from a sole trader or partnership and becoming a company can save tax and NIC. For instance in tax year 2011/12 the saving on profits of £50,000 is £4,257.

2.      Use of self employed sub-contractors

The survey suggests that £2.05 Billion in tax and National Insurance contributions is overpaid because sub contractors are incorrectly treated as employees

For both 1. and 2. above, advice from a qualified accountant must be obtained to ensure all aspects are considered before a change is made.

3.      Not claiming Research and development allowances.

Total extra tax paid under this heading is estimated to be less than the others mentioned above, but from 1^st April 2012 the relief is set to rise to 225% of relevant spending. (i.e. for a small company at least 45% tax relief). SMEs should carefully review their activities to decide whether their processes and technologies fulfill the relevant criteria. It is shocking to note that, according to the report, only 12% of eligible businesses make use of R & D tax relief.

The report opined that “tax is a vast and complex subject and business owners often simply do not have the time to manage their tax affairs or understand the allowances available to them whilst also running their business day to day.”  It concluded by suggesting  that the use of  a professional adviser, such as an accountant or independent financial adviser could really make a difference to the amount of tax a business paid.

At this time, when bank borrowing is perceived to be difficult, any saving of tax might lead to more growth for the UK’s SMEs.

For further information/advice on this topic please contact Ward Williams: www.wardwilliams.co.uk