Small businesses across the UK are spending a working week every year complying with their VAT obligations.

The latest survey by the Federation of Small Businesses (FSB) shows that VAT-registered small business owners spend an average of 44 hours, the equivalent of six working days, managing VAT administration every year. So potential changes to the system, bringing more small firms into the VAT regime, would be a real burden for business.

Mike Cherry, FSB National Chairman (pictured right), said: "VAT is the most time-consuming tax to deal with. Small firms and the self-employed spend days and days every year complying with their VAT obligations - time that should be spent expanding their businesses.

"Once again small firms and the self-employed fear the Chancellor could single them out for a tax grab at the Budget, this time by forcing more of them into the VAT regime. Doing so would create a real drag on business output. At a time of spiralling costs and persistent uncertainty, a lowering of the VAT threshold is the last thing our entrepreneurs need."

The new research finds that over a quarter of firms (27 per cent) find VAT difficult to understand, compared to just five per cent who describe it as very simple to grasp.

Julian Millinchamp, VAT director at Gloucestershire-based Hazlewoods  accountants (pictured below), said: "We are amazed that as few as 27 per cent of firms find VAT hard to understand! We fully support moves to simplify the VAT system, but cannot see how bringing a further 400,000 - 600,000 small businesses into the VAT system will contribute to 'simplification'. Our impression is that HMRC are currently significantly under-resourced for administering the VAT regime as it presently exists, particularly in relation to providing timely and helpful advice to taxpayers, and bringing additional taxpayers into the system will only exacerbate the situation.

"The move would also create additional administrative requirements and costs for small businesses, particularly in light of the imminent requirement to keep digital records under the Making Tax Digital (MTD) reforms, and would of course add 20% to the cost to consumers of various goods and services which can currently be obtained free of VAT."

Mike Cherry added: "The VAT regime is awash with complexity and anomalies. When the burden of administration falls so heavily on business owners and the self-employed, it opens the door to lost hours and honest mistakes. Small firms are not like corporations - they don't have accounting expertise on tap.

"We have an issue with some firms approaching £85,000 of turnover and putting the brakes on. The sensible route to solving that issue lies in embracing the Office of Tax Simplification's recommendation for a smoothing mechanism that respects the current threshold, not forcing more small firms into the system."

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