Key takeaways from a CIOT small business and tax compliance roundtable 

The following is a summary of points and recommendations made during the discussion. The event was held under the Chatham House Rule so the participants making each point are not named. 

The compliance burden: time, cost, and complexity 

Small businesses’ tax compliance is a significant challenge, particularly for those without dedicated tax teams. The time and resources spent on compliance often detract from core business activities and growth. For many sole traders and microbusinesses, the cost of compliance is felt acutely, with research from the Federation of Small Businesses (FSB) indicating as high as £4,500 per year. There was a perception that these costs are disproportionately high relative to turnover for the smallest firms. Recommendations included ensuring tax rules and systems are as straightforward as possible to enable small businesses to focus on growth. Participants also cautioned against lowering income thresholds for digital tax schemes if it increases burdens without adequate support. 

Accessibility and support: a need for better engagement 

The roundtable highlighted that small businesses are facing an issue with accessing support from the tax authority. While many businesses rely on government sources and intermediaries for advice, satisfaction with official support remains low. Although the phone remains the primary contact method, businesses struggle to get answers in a timely manner.  This lack of accessibility contributes to increased stress and anxiety among business owners. Potential solutions discussed included enhancing the accessibility of tax authorities through better customer support, and HMRC's further development of digital support options (such as chat functions and AI-driven assistance). 

Diversity and segmentation: one size does not fit all 

A recurring theme was the diversity of the small business sector. From sole traders to larger entities, the needs and challenges vary widely. Participants cautioned against generalisations, suggesting that effective policy and support require a more segmented approach. Measuring compliance costs as a percentage of turnover, rather than as an absolute figure, was suggested as a better metric.  

Compliance challenges: from errors to deliberate non-compliance 

The discussion acknowledged that compliance issues arise from both deliberate non-compliance and genuine errors or lack of awareness. It was noted that some businesses start informally, with tax obligations often an afterthought. A participant commented that there is a widespread fear of making mistakes, and the complexity of the system can be a deterrent to compliance. To address this matter, participants suggested encouraging businesses to adopt good practices from the outset, such as opening business bank accounts and using proper record-keeping systems. 

Technology and Digitalisation: promise and pitfalls 

Technological solutions, such as integrated accounting software and digital tax systems, were seen as promising avenues for easing compliance. However, the transition to digital systems—such as Making Tax Digital (MTD)—was described as burdensome, especially for those lacking proper record-keeping or software. Concerns were raised about the complexity of digitalisation and the risk of increased errors during the transition. Participants called for ‘realistic’ expectations and greater engagement with small businesses during this process.  

Education and misinformation: The need for better support 

There was strong agreement on the need for improved education and training for small businesses, particularly in basic accounting and tax knowledge. Current support is often insufficient unless an adviser is involved, and misinformation—especially via social media—was identified as a growing problem. Participants urged proactive efforts to counteract misinformation and provide accessible, accurate guidance for small businesses. 

Policy complexity and a call for simplification 

The abolition of the Office of Tax Simplification was seen as a step backwards, with participants highlighting increased complexity in the tax system. Specific tax schemes and credits, such as R&D credits, were highlighted as particularly challenging for small businesses to navigate. Simplification of schemes and systems was a key recommendation here. 

Real-time and transactional taxation: A future direction? 

Some participants expressed interest in moving from annual to real-time or transactional tax payments, suggesting this could reduce compliance burdens and errors. The integration of tax compliance tools within banking and financial services was also discussed as a potential way to streamline processes. 

This summary reflects views and recommendations from the roundtable. Not all participants, nor CIOT, necessarily agree with all the views/recommendations.