Why does tax legislation matter?

In the UK, 99.9% of businesses sit under the SME umbrella. With the job market remaining unstable, it’s little surprise that even more people are opting to start their own business.

Many SMEs will not have time to absorb changes in tax legislation, not understanding the implications it has on their business or bottom line. In a competitive marketplace, those businesses that fail to pay attention to tax legislation put themselves at a serious disadvantage.

The UK tax system is complex and SMEs can feel at a loss against their bigger competitors who can employ specialists to keep on top of the constant changes in legislation. On top of that, many SMEs may be feeling disheartened, and think that the government should be doing more in order to stimulate small business growth.

The Chancellor has already announced changes to the personal tax and NIC bands from April of this year. Many business owners may find themselves paying 40% and even 50% income tax, with NICs on top of that. So knowing how to structure remuneration for any SME will be vital.

SMEs also need to think about the way in which they do business. SMEs that structure their businesses in the traditional sole trader or partnership will be paying more tax than those who run their businesses through limited companies. This is down to an anomaly in the law, and those wishing to change will need to properly understand the implications this will have on their business moving forward. 

Many SMEs may be aware that by not keeping up with tax legislation, they could be at a disadvantage – losing valuable tax breaks. Nonetheless, because the process is timely and administrative-heavy, it doesn’t and can’t always take priority.

SMEs must wise up. Tax legislation is always changing. A business that is aware of the implications of new legislation and how this affects their individual business needs will reap the benefits in the long run.


Michael Steed, MAAT, CTA (Fellow) from Kaplan Financial will be presenting the AAT (Association of Accounting Technicians) UK tax update series hosted around the country throughout April and May 2011. To find out more click here.