Businesses weighed down by rising tax compliance burden, survey finds

The vast majority of mid-market businesses say the time and money they have had to invest in tax compliance has risen considerably in the last five years, according to a new BDO survey.

Data from BDO’s mid-market tracker of 500 UK mid-sized businesses with revenues between £10m-£500m, revealed that 85.4% said they had seen some form of increase in the time and money invested in tax compliance in the last year, compared to five years ago.

According to the survey, the taxes causing the biggest compliance headache and most commonly leading to investigations in the last 12 months were payroll taxes (33.6%), corporation tax (32%) and capital allowances (28.6%).

The results point to increasing demands on mid-market businesses to ensure they are managing their tax compliance obligations.

This demand is set to increase further, as new reporting requirements have just been confirmed that will necessitate even more administrative work for businesses in the future.

Despite a welcome one-year delay, from April 2028, small companies and micro-entities will be required to file profit and loss accounts with Companies House. HMRC is also consulting on new detailed reporting arrangements for loans made to company directors.

These moves may assist HMRC in its efforts to tackle the UK’s tax gap, which in the most recent available data for 2023-24 stood at £46.8 billion, representing 5.3% of total theoretical tax liabilities. SMEs make up a large percentage of this, accounting for 60% of the total tax gap.

Dawn Register, tax partner at BDO, said: “Mid-market businesses are the crucial engine of the UK economy, contributing £1.8tn, equivalent to more than half of UK GDP and accounting for one in three UK private sector jobs.

“Our survey reveals that many are investing an increased amount of time and money on tax compliance. While HMRC may see this as evidence that companies are taking their tax obligations more seriously, the complexity of the system and the rising compliance burden risk acting as a drag on economic growth.

“While the Government must continue to focus on simplifying the tax system in a bid to reduce compliance demands, pragmatic businesses should be gearing up to automate more of their financial, accounting and tax processes. This will require upfront investment but will ultimately pay off in terms of time-saving, reduced errors and less risk of a tax investigation.

“There is also a question about where HMRC’s limited resources are best focused. Increasingly complex rules tend to place the greatest burden on compliant businesses, who are already investing significant time and cost in getting things right.

“A more effective approach is likely to be targeted enforcement of the existing rules, with a clear focus on those who deliberately evade tax or operate outside the system, rather than adding further layers of complexity for the majority who are trying to comply.”

ENDS

Note to editors

BDO UK operates in 17 offices across the UK, employing 8,000 people. It has UK revenues of £1bn.

It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing services predominantly to the entrepreneurial, ambitious and growing mid-sized businesses that are driving growth in the UK economy. BDO calls this segment of the market the UK’s economic engine.

BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 169 countries and territories, with 95,000 people working out of 870 offices worldwide. It has revenues of US$11bn.
 

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