The most direct and visible method for governments to influence small businesses is through taxation. It is the system used by national administrations to acquire money from both people and organizations. Collected taxes are then used in to support the government itself as well as to finance public services. Taxation is not only relatively permanent but compulsory as well. In addition, the amount contributed by an individual is not directly related to the extent of government services he or she receives (The Columbia Encyclopedia, 2004).
In business, taxation is also a significant matter of discussion. While businesses greatly contribute to the national development through taxes, it is also important that tax systems can help businesses, especially the small ones, to grow and develop in the most effective way. However, in some cases, the issues on tax complexity and compliance appear to hinder this significant objective. In order to elaborate more on these taxation difficulties, the case of the small businesses in UK will be taken into consideration. How these taxation difficulties have affected small businesses will be highlighted based on a newspaper article from the Birmingham Post (Naqvi, 2001).
Issues and Effect
According to the article, in 2001, the UK Ministers had received several criticisms from the regional accountancy groups due to the problems on the UK taxation systems, which had greatly affected several small businesses in the country. Critics were mainly pointing out on the inability of the Ministers to consider the status of the small businesses as well as their needs for further development. According to the president of the Birmingham & West Midlands Society of Chartered Accountants Mike Russell, the main problem of the UK taxation system is brought about by the excessive tax legislations as well as the complexity of the taxation system. Due to these taxation difficulties, Russell noted that the government's role to help small businesses to progress was significantly overlooked.
Based from the details of the article, the effect of these taxation issues was significant. A total of about 2,000 members from strong organizations, who were in charge of providing advisory assistance to small businesses, had even expressed their concern over this taxation matter. Russell stresses further that tax complexity and intensive legislations affect smaller businesses during their daily business operations. This effect is encountered mainly through increased expenses as well as the time allotted for compliance.
In fact, costs derived from the implementation of a new legislation totaled to more than 8,000 pounds in 2001 for small businesses. Compared to the previous year's average cost of 4,700, the difference in figures was indeed significant. Due to the increasing complexity of the UK tax system, it has been suggested that smaller businesses would rather risk on accidental non-compliance as they simply do not have the time or resources to manage the complexity and volume of the tax legislations. Some accidentally do not comply with these regulations due to lack of knowledge.
The problem on taxation complexity has long affected most national taxation systems. In the article written by Bartlett (2004), complaints from entrepreneurs due to taxation complexity had been reported even way back 1928. Previous investigations concluded however, that the complexities in most taxation systems are brought about by the businesses themselves. Businesses nowadays are very much complex, which in turn limits the possibility for tax simplification.
In the book Perfectly Legal authored by David Cay Johnston, the increasing complexity of contemporary businesses are brought about by the purpose of the entrepreneurs to lessen their tax burdens. Nonetheless, national administrations respond to this tendency by implementing equally complex taxation systems. The effect of tax complexity does not seem to affect larger corporations. This is due to the fact that such businesses can employ tax experts or accountants to address this complexity. However, this taxation difficulty is a major burden for both smaller enterprises and individuals, particularly in terms of cost (Bartlett, 2004).
The effect of taxation complexity on small businesses has been clearly identified by the General Accounting Office. For instance, GAO has noted that about $18 billion of overpaid taxes by small businesses were accumulated for the past two years. This had been caused by tax return errors. Other reports by GAO also showed that more than two million taxpayers had overpaid their taxes as they failed to take advantage of their legal deductions (Bartlett, 2004). This article by Bartlett further supports the case of the small businesses in UK as this shows how tax complexity could only lead to excessive costs.
Solutions
The article clearly implied that small business owners tend to disregard the tax regulations implemented by the government. This is the way how the British entrepreneurs manage these taxation difficulties. Apparently, they are more concerned on how to operate and expand their respective businesses. Relevant agencies however, attempted to act on this taxation problem. For instance, the problem on funding was addressed by means of broadening the Small Firms Loan Guarantee Scheme. This action helped in dealing with finance providers asking for excessive security levels. A working party was also established by the Institute of Chartered Accountant in England and Wales in order to work on the funding problem.
