UK micro-businesses at risk from ignoring their expenses

Brought to you by FreeAgent Central Ltd

  • Just 22% of micro-business owners claim back all of the expenses they incur for their business

  • 21% said they claim less than half of their small business expenses

  • 10% said they claimed “hardly any” or none of their expenses

  • 25% of micro-business owners said they would not claim an expense if it cost them less than £5

  • 19% said they would not claim anything worth less than £10

  • In 2014 FreeAgent logged a total of 2.1 million expenses worth a combined total of £146 million

Small business owners risk overpaying tax and losing money because they don’t manage their expenses properly, according to new research from pioneering cloud accounting company FreeAgent.

In a survey carried out by YouGov for FreeAgent - who provide a multi-award winning cloud accounting system for accountants working with micro-businesses – just one in five (22%) of micro-business owners said that they claimed back all of the expenses they incurred for their business.

The poll, which surveyed more than 500 micro-business owners/sole traders and was carried out to mark the launch of FreeAgent’s £1m crowdfunding drive through Seedrs, revealed that 21% of respondents said they claim less than half of their small business expenses, with 10% admitting they claimed “hardly any” or none of their expenses.

In addition, a quarter (25%) of micro-business owners surveyed said they would not bother to  claim an expense if it cost them up to £5, while a further 19% said they would not claim anything worth up to £10.

This can significantly add up given that in 2014, FreeAgent logged a total of 2.1 million expenses worth a combined total of £146 million.

The research also revealed that the main reason micro-business owners haven’t claimed back an expense is that they don’t think they’re worth claiming - with 37% of respondents admitting this. Other reasons for not claiming expenses included losing or forgetting the receipts (30% of respondents), not wanting to face the admin involved (12%) and worrying that HMRC will challenge them (11%).

Ed Molyneux, CEO and co-founder of FreeAgent, said: “In order to avoid overpaying tax, all small business owners should be scrupulous about reclaiming their expenses.  But it’s surprising how few people actually do claim everything back, and how many ignore or dismiss certain expenses for being so small.

“Whether it’s £5 or £500, that’s all money which business owners can claim tax relief on - and in the case of the smaller expenses, it’s also money that quickly adds up. Before too long, those little expenses can be worth hundreds of pounds, so it’s strange that people seem to think it’s too much hassle or not worth the effort to claim these back.”

Internal research carried out by FreeAgent also suggests that technology may help people stay on top of expenses - and so claim more of them. In a review of data from its 40,000+ customers, the company found that 61% of its UK customers recorded an expense worth less than £10 in 2014. The stats also showed that more than a third (38%) of the total number of expenses logged in FreeAgent during 2014 were for amounts less than £10.

Ed continues: “Although the YouGov research paints a stark picture, the good news is that when people are using technology like FreeAgent, which makes it quicker and easier to log expenses, it looks like they’re actually more likely to claim these smaller costs back. Almost two thirds of our UK customers recorded an expense worth less than £10 last year, so either we’re really good at attracting a particularly frugal customer base or we’re helping businesses realise the value of recording these receipts.”

To find out more about FreeAgent visit their website or call 0800 025 3900. More information about FreeAgent’s crowdfunding campaign can be found here: https://www.seedrs.com/startups/freeagent

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 505 owners/ partners in micro-businesses (i.e. businesses with fewer than 10 employees). Fieldwork was undertaken between 1st - 9th June 2015. The survey was carried out online.