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The recently published 'Small Business Action Report' suggests that the UK's small firms are wasting billions each year on unnecessary tax payments - some £1,500 for each SME in the country.

The Unbiased.co.uk Tax Action Report outlines the potential savings small firms can make by making the most out of allowances, tax credits and support schemes.

Billions wasted on unnecessary tax payments

According to the report, the biggest 'waste' comes in the form of firms operating as sole traders and partnerships, rather than incorporating. The site estimates that over £4bn is spent on additional income tax and National Insurance Contributions by unincorporated businesses.

The report also suggests that more small firms should use contracting staff (either using self employed or limited company workers instead of employing people direct), subject to compliance with current employment status guidelines (i.e. IR35).

The estimated tax advantages to be gained from this move alone could be as much as £2bn per year.

R&D tax relief is also under-utilised. In the 2011/12 tax year, all research and development costs carry a 200% tax deduction against profits (rising to 225% in 2012/13), but only 12% of eligible firms claim this type of relief at all. Just doubling the number of claimants could save £373m per year in unnecessary tax payments.

Small businesses should seek professional advice

Commenting on the reports findings, Karen Barrett from unbiased.co.uk said that most of the tax wastage was a result of business owners failing to understand the 'spaghetti bowl' of UK tax reliefs.

"Currently over three in five small business owners say they use a professional adviser, such as an accountant or independent financial adviser (IFA) for their business and it is these professionals who can really make a difference to the amount of tax a business pays."