{"id":4428,"date":"2018-06-12T11:00:21","date_gmt":"2018-06-12T10:00:21","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=4428"},"modified":"2026-01-29T10:36:15","modified_gmt":"2026-01-29T10:36:15","slug":"tax-burden","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/tax-burden\/","title":{"rendered":"Starting a business? Here\u2019s how to stop the tax burden killing it"},"content":{"rendered":"
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\n\t\t\t\t\t\t\tStrategy, Legal & Operations<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
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\n\t\t\t\t\t\tStarting a business? Here\u2019s how to stop the tax burden killing it\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\n\t\t\t\t\"\"\t\t\t\tKeir Thomas-Bryant<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n
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Aware of the tax burden on businesses? Did you know smaller and newer businesses pay as tax a much larger proportion of their profits compared to larger, more established companies? That\u2019s the finding of a new report from Sage that spoke to more than 3,000 companies across 11 countries.<\/p>\n\n\n\n

A Taxing Problem: The Impact of Tax on Small Businesses found the total tax paid by small businesses does not always align with the headline corporation tax requirements within each country.<\/p>\n\n\n\n

For example, new and smaller companies typically sacrifice profit for all-out growth, yet they still face an identical corporate tax regime compared to medium and large businesses. This means medium or larger well-established companies can operate with an inherent competitive advantage.<\/p>\n\n\n\n

The report finds that, when compared to profit, the total tax bill facing smaller and newer businesses in many parts of Europe is likely to be effectively higher than the corporate tax rate. Those businesses with 10-49 employees, identified as \u201csmall\u201d within the report, are particularly hard hit in countries such as the UK, Ireland and Spain. See Figure 1 below.<\/p>\n\n\n\n

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This occurs despite governments sometimes offering \u201cbreaks\u201d for younger and\/or smaller companies.<\/p>\n\n\n\n

However, businesses in Europe might pity microbusinesses in Brazil, where tax as a percentage of profits pushes towards a surely prohibitive 70%.<\/p>\n\n\n\n

The higher effective tax rate doesn\u2019t help when young businesses already face a precarious cash flow situation<\/a>, with requirements to purchase initial stock or capital investiture for machinery or other equipment.<\/p>\n\n\n\n

Taxation \u2013 in all its forms \u2013 can have a significant impact on the continued viability of a company and can represent a huge barrier to entry or growth.<\/p>\n\n\n\n

To provide context to this issue, SMEs typically account for the majority of a country\u2019s employment. Any regime, accidental or deliberate, that discourages individuals from starting new businesses is ultimately detrimental to the country as a whole so needs to be addressed.<\/p>\n\n\n\n

Finding a solution<\/strong><\/h2>\n\n\n\n

Speaking to Sage Advice Newsroom, Chas Roy-Chowdhury, head of taxation at accountant trade body ACCA, mentions an often-discussed \u201ctax gap\u201d, in which governments don\u2019t receive what they\u2019re owed.<\/p>\n\n\n\n

\u201cBut there’s also probably a negative tax gap,\u201d he says. \u201cIt goes the other way, where small companies haven\u2019t taken advantage of the allowances they’re entitled to.\u201d<\/p>\n\n\n\n

Smaller businesses, for example, might not even know about capital allowances they\u2019re entitled to when investing in assets such as plant machinery. They might not understand the VAT system and how registering can save money \u2013 or how registering too late can lead to a sudden high tax bill and even fines.<\/p>\n\n\n\n

Very small businesses might not realise they can get a tax deduction for space in their home used for business \u2013 from a back-bedroom office, to storing stock in a garage.<\/p>\n\n\n\n

Chas points out that while individuals might be used to the tax office correcting mistakes and even providing rebates when it comes to personal income tax, the rules are simply different for businesses.<\/p>\n\n\n\n

He says: \u201cIf a business doesn’t take a certain deduction for capital items they\u2019ve bought then HMRC don\u2019t necessarily have to come back to them. It’s the business\u2019s choice whether they take a deduction or not, so it\u2019s very much up to them to get it right.\u201d<\/p>\n\n\n\n

It isn\u2019t just the cost of tax that can be the issue. Business tax is simply complex and again this can take even the bravest new business owner by surprise. This is supported by the report\u2019s data, which says significant working days each year are spent on tax-related accounting \u2013 ranging from 0.5% in Singapore to more than 4% in the US.<\/p>\n\n\n\n

\u201cThe tax system is a minefield,\u201d adds Chas. \u201cIt\u2019s just a totally different language. The more governments around the world can do to simplify tax, rather than giving lip service, the better it’s going to be.\u201d<\/p>\n\n\n\n

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Having an understanding of your tax obligations will really help your business<\/figcaption><\/figure>\n\n\n\n

Five tips for new and smaller businesses to reduce the tax burden<\/strong><\/h2>\n\n\n\n

However, there\u2019s little doubt that tax considerations should be at least near the top of the admin list for anybody starting a new business. Here are five tips for getting started.<\/p>\n\n\n\n

1. Consult an accountant<\/strong><\/h2>\n\n\n\n

Although a daunting prospect \u2013 and perhaps financially so for newbie businesses with limited cash \u2013 many accountants offer a free initial consultation session for potential new clients.<\/p>\n\n\n\n

Accountant trade bodies such as ACCA<\/a> will help you find accredited members. \u201cIt could be the best 30 minutes or hour you get free in your life,\u201d says Chas. Ongoing advice might be an unwanted business expense, he adds, \u201cbut it could be a lot more money to get it wrong!\u201d<\/p>\n\n\n\n

2. Be the wise fool<\/strong><\/h2>\n\n\n\n

There will be a certain amount of red tape involved in any business and, yes, it might be significant and take you away from the core tasks of building your business.<\/p>\n\n\n\n

Rallying against the situation won\u2019t provide a solution and nor will simply ignoring it or putting it off. Getting outside help from an accountant or bookkeeper can help but you\u2019ll still need to know at least aware of the terminology and background information.<\/p>\n\n\n\n

\u201cGo into this with your eyes open rather than with rose-tinted glasses,\u201d Chas advises.<\/p>\n\n\n\n

3. Plan for tax from day one<\/strong><\/h2>\n\n\n\n

Most individuals aren\u2019t trained to consider tax directly when they\u2019re employees thanks to deductions at source, such as PAYE in the UK. Even most freelance workers simply put aside a percentage of earnings with the anticipation that it will be enough to pay the yearly or quarterly demands.<\/p>\n\n\n\n

However, a business owner needs to know about tax from the first day of operation<\/a>. It won\u2019t take most VAT-eligible businesses very long to reach the threshold of \u00a385,000 in turnover, for example (and note that the figure there is turnover, not profit or assets).<\/p>\n\n\n\n

4. Don\u2019t make assumptions<\/strong><\/h2>\n\n\n\n

You might have heard about tax relief schemes for new or high-growth businesses, or heard about grants from local or national governments<\/a>, or other bodies.<\/p>\n\n\n\n

But often these come with significant and complicated qualifying strings attached, and therefore assuming you qualify can be a costly mistake \u2013 although if it\u2019s worth it you might also choose to adjust your business structure so that you do in fact qualify.<\/p>\n\n\n\n

However, both routes require you to be fully informed as early as possible and, again, consulting qualified third parties might help. You might find your local government offers a small business adviser, for example, as might your bank.<\/p>\n\n\n\n

5. Speak up if you get into trouble<\/strong><\/h2>\n\n\n\n

Not being able to pay your tax bill is a casebook example of insolvency but try not to panic if it happens to you. Speak to your accountant as soon as possible, or talk to an insolvency practitioner. There might be solutions.<\/p>\n\n\n\n

HMRC\u2019s Time to Pay<\/a> system, for example, can offer a way out of the hole \u2013 but only for what HMRC call \u201cviable\u201d businesses, and you\u2019ll only get a finite time to cover the debt (definitely no more than a year and often less).<\/p>\n\n\n\n

Some businesses assume that if they can\u2019t pay then the taxman will accept an offer in return for the business remaining in operation. Sadly, this isn\u2019t true.<\/p>\n\n\n\n

In fact, the government will probably add interest to the amount owed and if you ultimately can\u2019t pay then it will very likely attempt to liquidate your business if nobody else already has.<\/p>\n\n\n\n

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A Taxing Problem<\/h2>\n\n\t\t\t\t\t\t\t\t\t
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Struggling with the effects of tax on your business? You’re not alone. Learn more about the impact of tax on small businesses by reading our free report.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\tDownload the report<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\"\"\t\t\t<\/div>\n<\/div>\n\n\n

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Join more than 500,000 UK readers and get the best business admin strategies and tactics, as well as actionable advice to help your company thrive, in your inbox every month.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\tSubscribe now<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\"\"\t\t\t<\/div>\n<\/div>\n\n

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