A government push to make filing tax returns digital has significantly increased administrative costs for British businesses.
Small firms that have switched to the making tax digital programme are each spending an average of £4,562 and 52 hours a year on tax compliance, research by the Federation of Small Businesses (FSB) found.
However, businesses that have not migrated to the making tax digital programme only paid £2,960 a year in compliance.
Investment spending has jumped due to small businesses needing to buy technology that is compatible with the making tax digital initiative. Costs associated with making tax digital are expected to rise as more taxes are absorbed into the programme, the FSB said.
The FSB said small businesses are losing an estimated £25bn a year to tax compliance.
Mike Cherry, national chairman of the FSB, said: “Small businesses are fully behind the government’s vision for a high skill, high productivity, low tax economy.”
However, Cherry warned the cost of tax bureaucracy is hampering small businesses’ ability to invest in productivity enhancing assets.
“Reducing the huge amount of time and money lost to tax bureaucracy would free up billions for investment, upskilling and digitalisation. We’ve always said that – rolled-out in the right way – MTD could mean productivity gains over the long-term.”