Navigating the intricate landscape of taxation is a daunting challenge businesses face annually. With a collective cost exceeding £15 billion per year, this staggering figure embodies the burden that companies bear while striving to comply ...
Addressing the exorbitant annual compliance costs for UK businesses is imperative!
A recent National Audit Office (NAO) report, aptly titled 'The Administrative Cost of the Tax System', provides an insightful analysis of the expenses associated with tax compliance, showcasing the financial strain on the business sector and the associated challenges for HMRC.
By utilising a standard cost model, HMRC estimates that compliant UK businesses incur around £15.4 billion each year to fulfil approximately 2,500 obligations across 27 distinct policy areas!
Breaking down these expenses reveals that £6.6 billion is attributed to fees paid to agents, accountants, and other intermediaries which is a substantial portion of the overall cost. Additionally, businesses are burdened with £4.5 billion in acquisition costs, such as software, and £4.3 billion in internal costs, which encompass salaries for employees tasked with administrative duties.
However, I feel that HMRC's estimates significantly underrepresent the actual costs incurred by businesses. The NAO supports my assertion, highlighting several critical factors contributing to understated compliance expenses.
Firstly, the NAO points out that HMRC's figures do not account for all taxpayer obligations, which could substantially inflate the estimated total. Secondly, HMRC has not undertaken research since 2015 to assess the time spent by businesses on tax administration, suggesting that the landscape may have changed dramatically over the past eight years without proper documentation.
"Even though some costs have been uprated, they fail to reflect the broader transformations in the tax system since 2015!
As the landscape of tax compliance continues to evolve, it is crucial to consider how HMRC can improve its administration of the tax system for both businesses and individual taxpayers. The NAO observes that many taxpayers and their agents are encountering difficulties with tax matters and are consequently losing trust in HMRC. This growing sentiment echoes findings from Parliament's Public Accounts Committee, which scrutinised HMRC's customer service performance.
Inadvertently, HMRC's operational challenges have led to an increase in costly and unnecessary point-of-contact interactions. The NAO believes that such calls often arise due to HMRC's process failures and delays. Eliminating progress-chasing calls could save HMRC over £36 million yearly. Consequently, the focus must shift towards enhancing efficiency in the system through improved communication and strategic responses.
The NAO report recommends a number of strategies designed to reduce compliance costs across the board. Chief among these recommendations is adopting a holistic approach to assessing the cost-effectiveness of the tax system, ensuring a thorough understanding of how changes will affect all parties involved.
As businesses continue to grapple with significant compliance costs, I believe it is crucial for HMRC to better recognise how systemic changes can yield substantial savings in tax administration. Advocating for a simplified and less convoluted approach to taxation will enable companies to withstand the burdens currently placed upon them.
"It will not only relieve financial pressures, but will also bolster confidence among taxpayers!"
As the NAO's findings illustrate, addressing the exorbitant annual compliance costs for UK businesses is imperative for both the private and public sectors. By understanding the multifaceted challenges associated with tax compliance, HMRC can pave the way for improved efficiency and productivity within the tax system.
If you'd like to read the NAO report in full, then do click here.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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