What tax compliance really costs your business — and where the time and money goes

If tax admin feels like it’s eating more of your week than it used to, you’re not imagining it. According to the Federation of Small Businesses (FSB), the average UK small business now spends £4,500 and 44 hours a year just staying compliant with the tax system — up around 10% since 2021. Multiplied across the UK’s 5.5 million small businesses, that’s a collective £25 billion and over 240 million hours a year. Here’s what’s driving that cost, and what you can do about it.

Where the £4,500 and 44 hours actually go

The FSB’s figures cover a broad range of activity, not just filing a return once a year:

• Trying to contact HMRC for support or clarification — over half of small firms say this is difficult, and only 23% rate their phone experience as satisfactory
• Staff time spent on tax-related admin, whether that’s bookkeeping, VAT records, or payroll
• Accountancy fees, for firms that use a professional
• Software subscriptions for digital tax tools
• Staying on top of the rules across VAT, PAYE, National Insurance Contributions, and Corporation Tax, all of which change regularly

Why it’s about to get more demanding, not less

Making Tax Digital (MTD) is rolling out further through 2026, extending digital record-keeping and more frequent reporting requirements to more small businesses. That typically means new or upgraded accounting software, staff time learning it, and in some cases bringing in outside bookkeeping help — on top of the compliance load that already exists. Both the FSB and the Institute of Chartered Accountants in England and Wales (ICAEW) have raised concerns about the timing, given how many small firms are already managing tight margins and rising costs elsewhere.

Practical ways to reduce the burden

• Use HMRC-recognised software rather than manual spreadsheets — it reduces errors and is a requirement for MTD compliance anyway, so getting ahead of it now avoids a scramble later
• Keep records current, not retrospective. Reconstructing months of paperwork at deadline time costs far more hours than logging transactions as they happen
• Get a second opinion on your setup. FSB research cited elsewhere shows businesses working with a professional accountant see meaningfully higher revenue growth on average — partly because good advice prevents costly compliance mistakes, not just because of the filing itself
• Build a buffer into your calendar, not just your budget, around VAT and Corporation Tax deadlines. Time pressure is what turns routine admin into stressful admin

The bigger picture

There is political pressure building on this. A parliamentary committee has called on the government to publish a proper baseline of SME tax compliance costs and target a 25% reduction by the end of this Parliament. Nothing has changed yet — but it’s worth knowing that the scale of this cost is now on record and under scrutiny, not just something small business owners are quietly absorbing.

For now, the most reliable lever is your own: the businesses spending least on compliance tend to be the ones treating it as an ongoing, small routine rather than an annual crisis.