Small Business Tax Action Report

Small Business Tax Action Report [infographic]High profile individuals and corporations may take the spotlight for tax avoidance, but the latest (Small Business) Tax Action Report from shows that 85% of Brits are not reducing the amount of tax they have to pay.

In all, Britons are paying £12.6 billion in taxes more than they have to and they are not taking advantage of the tax reductions that they are legally entitled to. That amounts to about £421 for every person in the UK.

Whilst the tax action report covers all sections of the population, including individuals and families, small businesses are failing to take advantage of the tax breaks available to them too. Britain’s SMEs waste an estimated total of £7.1 billion every year according to the report.

The key areas of "tax wastage" for UK small firms are noted as being:

  • Incorporation & self-employment
    The self-employed pay a greater rate of tax than that which is paid by small limited companies.

  • Research & development relief
    Small businesses can claim tax relief on their research & development, although there are toght guidelines to adhere to

  • Salary sacrifice
    By sacrificing some of their pre-tax pay, employees can receive a non-cash benefit such as a new car.

  • Penalties for late filing of tax returns
    Sole traders who file their tax returns on time can avoid paying a penalty for doing so.

  • Tax relief on pension contributions
    Stakeholder pensions, for instance, have a percentage "chipped in" by the Government meanign if you pay 20% tax for every £80 you oay in they’ll top it up to £100

On the point of self-employment, have calculated that SMEs could save a total of £2 billion per annum between them by using self-employed contractors instead of having employees. Assuming that 15% of the UK’s higher-rate tax payers could work for themselves his would save small firms having to make National Insurance Contributions and the onus would fall on the contractor to pay their own NICs instead.

However, small firms must be absolutely clear of the HMRC rules regarding taking on self-employed workers because by doing so this could be viewed as "disguised employment". Smalll businesses should seek professional advice in this area as being self-employed for the sole purpose of reducing a company’s tax liabilities could land a business in hot water.’s CEO, Karen Barrett, said of the report:

“Our Small Business Tax Action Report reveals that by utilising self-employed workers better, SMEs could be saving tax payments but it also highlights that tax can be a bit of a minefield.”

“Tax is a vast and complex subject and it can be hard for business owners to find the time to understand how to optimise their tax status whilst also running their business day to day.”

Barrett’s advice to small businesses is that they should consult an Independent Financial Advisor before venturing into any schemes lest they cross the line into tax evasion.

For your next step use our tool to find an IFA or read our business articles on Funding a Car through Salary Sacrifice, Incorpoarting a Company or National Insurance Contributions.

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