On 11 November 2021 HMRC published on its website a research report entitled Qualitative research with small businesses to explore their perceptions of tax administration burden. The paper is based on research conducted by telephone conversations with small business owners in August and September 2017.

This research aimed to establish how small businesses view tax compliance burdens and to identify how HMRC could help to reduce the compliance burden. The businesses in the survey had fewer than 20 employees and an annual turnover below GBP 10 million, including a variety of small businesses from sole traders to firms trading internationally.

The small businesses considered that they coped with tax compliance despite their minimal training or expertise. Tax compliance and administration were seen as necessary tasks in running a successful business. Tax administration was generally viewed as fairly straightforward and routine.

There were four main factors determining the extent to which tax compliance was seen as a burden. These were confidence in using digital platforms; knowledge of the tax system and HMRC processes; confidence in handling general business finances; and the complexity of the business’s tax requirements. Value added tax (VAT), PAYE and self assessment were generally considered to be straightforward taxes, but self-assessment tax was often carried out by an agent.

Corporation tax was most frequently outsourced owing to the expertise and the compliance time required. The use of agents was seen as a cost-effective way to ensure efficiency and peace of mind, allowing the business more time to spend on earing revenue.

Businesses had difficulty finding answers in the digital guidance provided by HMRC and often could not obtain the necessary information. They were not clear about the required processes and waiting times for resolving issues. Tasks that had an emotional impact were considered to be more burdensome than routine tasks that needed time or money to complete.

Tax compliance was seen to be burdensome owing to emotional factors such as fear of change; fear of making mistakes; and fear of the complexity of the tax system. Businesses did however appear to adapt to changes over time. HMRC were often seen as more likely to impose penalties than to provide support. Correspondence from HMRC was often perceived as being hostile in tone.

The results of the survey suggest that HMRC could act more supportively. Systems should support businesses with tax compliance, and they could be encouraged to upskill to increase their competence in tax, technology and finance.

More guidance and support could be provided by HMRC to businesses to help them in adapting to new systems. Information can be made more user-friendly and could be easier to access. Small business should view HMRC as supportive and this could improve taxpayer attitudes. By implementing systems to actively support businesses, HMRC could promote tax compliance.