Is the UK Tax System Unfair for Small Businesses?

Categories: Business, Expenses, HMRC, Money, Tax

As the saying goes, there are only two certainties in life: death and taxes.

If you’re a small business owner, you’ll know this all too well. According to a recent survey by the British Chambers of Commerce (BCC), 58% of SMEs think the tax system in this country is unfair.

Despite this, small businesses make up 99.3% of the private sector. They’re the backbone of Britain and provide great employment opportunities.

So, what gives?

The scale of the problem

The BCC survey revealed a number of damning statistics about small firms and their opinion of the UK tax system.

Of the 1,000 SMEs questioned, more than two-thirds of business owners said they felt the way HMRC applies tax rules across businesses of all sizes is unfair. What’s more, they highlighted that HMRC seems to underestimate the time and money required to comply with the tax system.

Whether you’re trying to get your start-up off the ground or running an established small business, you’d be forgiven for wondering whether or not HMRC is on your side.

What about Making Tax Digital?

Making Tax Digital (MTD) was introduced this year in order to help businesses of all sizes communicate their financial affairs with HMRC, but it hasn’t been plain sailing for smaller firms.

Almost half of the respondents to the BCC survey said they expected assistance from HMRC in complying with MTD, auto-enrolment and business rates.

But is that help forthcoming? According to Suren Thiru, head of economics at the BCC, HMRC could do a lot more to help smaller businesses in a number of respects.

“The current UK tax regime isn’t a level playing field,” he explains. “When it comes to compliance there is a tendency for HMRC to see smaller businesses as low-hanging fruit.

“They feel under constant threat of being called out for getting things wrong in a tax system that has grown ever more complex.

“HMRC must provide better support to smaller businesses to get their tax right, rather than pursuing and enforcing penalties.”

Three forms of UK tax SMEs need to be aware of

With so many complicated tax rules in this country, it’s easy to lose sight of the most important taxes you need to pay attention to as a small business.

Here are three taxes that are often confusing for small business owners.

  1. Income tax

If you’re a sole trader, you’ll start paying income tax once the profit your business makes exceeds the current personal allowance of £12,500.

Limited company owners might have to pay income tax on salary and dividends taken, but it depends on how much they take from the company. Assistance from an accountant is definitely worthwhile when calculating your self assessment, because there are a number of factors to take into account and you could end up paying too much (or too little) tax as a result.

  1. National Insurance

Whether or not you believe this is technically a tax is for you to decide, but National Insurance (NI) is something you’ll have to pay regardless of whether you’re a sole trader or limited company.

Sole traders pay flat weekly rates of NI, unless their profits are beneath the small profit threshold.

For limited companies, the rules are a little more complex, but essentially mean businesses must deduct NI from employee wages when they’re paid above a specific amount each week.

In either case, it’s best to refer to the HMRC website for full details and seek advice from your accountant.

  1. Business rates

If your SME operates from retail premises or an office, it might have to pay business rates. It’s best to think of it as council tax, but for a business property.

Farm buildings and certain other types of property are often exempt from business rates, and some are even entitled to tax relief, but it’s best to check with your accountant and landlord to be sure.

Running a business from home? Unless you employ staff who work there, or have adopted it specifically to run as a business or sell goods and services from the property, you probably won’t have to pay business rates.


Whether or not the UK’s tax system is unfair for small businesses is entirely open to debate, but one fact remains: a great accountant will help you navigate what can be a minefield if you don’t have the luxury of an in-house finance team.

If you need help with business tax, just get in touch with our friendly team!