The Pay-As-You-Earn system (PAYE) which employers manage in order to make sure that most employees do not have to undertake the arduous task of completing an income tax form creates a “significant” burden on SME’s according to a Government watchdog.
Tax Simplification – The Background
The Office of Tax Simplification believes the workhorse of the economy – SME’s have disproportionate unfairness levied upon them. Small Businesses in the UK are a central part of the economy. They literally make up 99% of the nearly 6 million businesses in the UK. They employ 13 million workers in the UK and pay nearly £205 billion tax every single year. The SME is a big part of the economy and a big contributor to the state.
The OTS found that the developmental stages of growth faced by a business saw negative engagement with the tax system – which translates into difficulties for SME during the different periods of growth from micro to small business. This, the OTS found, has a negative impact not just on SMEs but the economy as it creates long-lasting concerns and holds back some businesses from growth.
What Does This All Mean?
The Chancellor, Philip Hammond, agrees with the Office of Tax Simplification, that the administrative costs of setting up a business aren’t clear enough and that having the wrong advice or misunderstanding tax rules can land small businesses in hot water with the tax authorities – for what are in reality mistakes.
The OTS wants new guidance to be created for start-ups – with clearer language on compliance with tax rules and better ways of engagement that moves away from the paper form format of the past to a digital future – which intersects nicely with the Making Tax Digital framework already underpinning the Government’s thinking on a paperless tax experience.
Another key point raised by the OTS is that the HMRC really need to make it easier for tax accountants to deal with HMRC on their SME client’s behalf. This also intersects with MTD by allowing for greater digital freedom when calculating and paying taxes online.
According to the OTS:
“Many new businesses are formed without sufficient help and guidance. This can lead to mistakes being made, resulting in substantial costs or penalties as their tax compliance affairs are put in order. We recommend that the government offer better and more readily accessible guidance, joined-up across government and communicated through multiple channels, to help people starting small businesses.
The UK’s PAYE system is the UK’s major tax collection system. It brings in about 40% of total tax receipts – some £200 billion. It has been transformed over the last decade, with the introduction of an integrated national system and the provision of real-time information by employers.”
How Can Prestige Business Management Help?
At Prestige Business Management we understand, just like the Office of Tax Simplification, that the majority of businesses do not employ extra staff and that the owners are the staff – this means that the administrative burden can loom disproportionately large when managing a small business.
We can help! At Prestige Business Management we provide simple and easy to understand advice and guidance for start-ups. We can help you navigate the tax compliance regulations and we can manage the weekly financial tasks required when running a business allowing you to focus more on running your business successfully.
However, we understand that payroll (PAYE) is a burden and that’s why we have created a unique payroll service. This service is designed for SMEs looking to expand and to take that next step – hiring staff and growing their business accordingly.
Furthermore, the move towards Making Tax Digital and the ‘real-time information’ demands outlined by HMRC provide another element of additional bureaucracy. Prestige Business Management is QuickBooks accredited partners, as such, we can help you navigate the digitization of tax and help you with your digitized PAYE and Making Tax Digital journey.