Obstacles for SME's
Three major obstacles for small businesses
Matthew is an accounting, business and tax expert at Woods Russell. He is a Chartered accountant and an Accounting Technician. He also has several degrees in both Economics and Social Sciences. He has worked alongside small business for many years and has extensive expert knowledge on taxation and accountancy matters for small owner managed business. If you would like to call Matthew please ring him direct on 07432 061 731 or e-mail him at firstname.lastname@example.org
1)Making tax digital
HMRC are determined that by 2020 most business, self employed people and landlords will be required to submit and pay their taxes quarterly. This is the biggest logistical shake up of the tax system I can remember and it is likely to place a crippling burden on small business. Despite HMRC assurances it will mean one of two things.
Firstly small business may attempt to do this quarterly upload themselves. As us accountants know, when clients try to do their own accounts and taxes two things generally happen. Either clients end up paying more tax than they are supposed to because they don’t know how to organise their records or do not have the knowledge to claim for all the things they are allowed to by law. Or, more worryingly, clients end up unwittingly committing tax evasion by under declaring tax. How many times have you had to tell a client they can’t claim for both mileage and fuel receipts? And how many people on the street know the difference between entertaining and subsistence? Indeed, it is often the case that the first time I see a client they have made errors in their tax affairs and HMRC are chasing them for thousands of pounds in fines, penalties and tax due.
The second option then, will be to employ a trusted tax advisor or accountant to prepare your quarterly uploads for you and get it right. In this way you will pay the correct amount of tax. However, if accountants are having to prepare a client’s affairs four times a year instead of just once it is impossible to see how some of this cost will not be passed onto the client.
Overall then this is a lose lose situation for the business or trader as they really only have two options, pay HMRC more or pay their accountant for preparing four sets of accounts.
Here at Woods Russell accountants, business and tax specialists, I have lots of contact with small and medium sized business. Clients are always unhappy when stifling or seemingly illogical regulation is created by government, directly impacting their business. There has been a lot of talk recently about how leaving the European Union will reduce red tape for business, however in this blog I identify three massive bureaucratic burdens coming directly from the UK government that are likely (or already have) to have small business howling in protest. I outline these below:
3)Tax on dividends
This change to the tax law has made extracting money out of a limited company more expensive for many small business owners. The main source of irritation for many small business is that the new dividend tax did not have any prominence or coverage in the last budget (unsurprisingly the government did not want to advertise an increase in tax on small business owners and entrepreneurial start-ups) and it has therefore come as a bit of a surprise.
For those of you who don’t know, the old notional tax credit on dividends has been done away with in favour of a standard tax of 7.5% on dividends over £5k up to the basic rate band. Simply put: for most clients this means that were previously you had no tax on dividends you now pay tax on dividends.
What is more frustrating is that there is no way out of this. 7.5% is still the lowest amount of tax you can pay and dividends are therefore still the most tax efficient method of extracting profits from a company after other allowances have been used up. Either by mistake or design the Chancellor has designed this tax to take just enough. The small business owner no option other than to pay the tax or leave more profit in the business.
With the above in mind it is now more important than ever to have a good accountant in your corner. It is becoming increasingly difficult to see how a small business owner can do everything on their own without some kind of external advice. Governments are united the world over in extolling their efforts to reduce red tape for business but this doesn’t ever seem to materialise and in reality and the opposite is often true. It leaves small business with two options, one is to give up, but this is not in keeping with the go getting entrepreneurial nature of many small business owners, the second is to get help from a professional who can help cut the red tape down.