Complying with tax rules costs a small business far more in proportion than a large business. In a Belgian study, self-employed people spent an average of 12.5% of their turnover on complying with the tax rules, large firms 0.07%. These compliance costs consist mainly of time spent on bookkeeping, VAT and payroll taxes, and the bill from an adviser. They come on top of the tax itself.
In short
- Compliance costs are the costs of time, bookkeeping and advice needed to meet the tax rules. They come on top of the tax you pay.
- The burden is strongly regressive: the smaller the business, the larger the share of turnover that goes on complying with rules.
- VAT and payroll taxes take up most of the time for SMEs. Recording and keeping records is the most expensive activity, not clever planning.
In this article
What are tax compliance costs?
Compliance costs are all the costs you incur to meet the tax rules, alongside the tax itself. They include your own time and that of your staff, keeping the books, the bill from an adviser and small costs such as software. Money you spend on this goes neither to the state nor to your business.
Researchers divide these costs into four kinds: time to understand and apply the rules, keeping records, payments to advisers such as accountants, and incidental costs such as postage and travel (Schoonjans et al., 2011). Because these costs are spread across ordinary spending, many business owners do not see them as a separate item.
Their existence also shows in behaviour. A study using American tax returns shows that people leave large tax savings unclaimed to avoid the paperwork. For example, they settled for the standard deduction instead of claiming their real, higher costs. The cost of filing a return therefore turned out to be much higher than earlier estimates based on surveys (Benzarti, 2020).
How much does it cost a small business to comply with the tax rules?
For small businesses it quickly amounts to thousands of euros a year and several percent of turnover. In a study of 151 Flemish SMEs operating as companies, compliance costs averaged €26,230 a year. That was 7.1% of value added, the money a business earns above what it buys in (Schoonjans et al., 2011).
A larger Belgian study using surveys from 2000 to 2006 shows the difference by size. Self-employed people spent on average 12.5% of their turnover on complying with the tax rules. For small businesses that was 3.3%, for medium-sized ones 0.22% and for large ones 0.07% (Eichfelder & Kegels, 2014). The average for the self-employed is pulled up by outliers. The median self-employed person was at 4.4% of turnover.
A review of dozens of studies from Europe, North America, Asia and Oceania confirms this pattern. For small businesses, the costs in a number of studies rise to more than 10% of turnover. Because the profit of most businesses is less than 20% of turnover, that weighs heavily on profit (Eichfelder & Vaillancourt, 2014).
Why do small businesses pay more in proportion?
Because a large part of the work is fixed, however big your business is. A VAT return involves largely the same steps with a small turnover as with a large one. Large businesses spread those fixed costs over much more turnover.
Economists call this regressive: the burden is proportionally heaviest for the smallest. In the Flemish study, businesses with up to 20 employees spent an average of 10.4% of their value added on compliance costs. For businesses with more than 20 employees it was 2.7% (Schoonjans et al., 2011). The researchers consider the average of 7.1% probably too low, because the smallest businesses were underrepresented in their sample.
In a small business, the owner does much of the tax work himself. His hour is expensive, because he is not spending that time on customers. Larger businesses have the same work done by an administrative employee or their own department (Schoonjans et al., 2011). In addition, large businesses learn faster through repetition and specialisation (Eichfelder & Vaillancourt, 2014).
Which taxes take up the most time?
For SMEs these are mainly VAT and payroll taxes, the taxes you collect on behalf of the government. In the Flemish study, half of all compliance costs came from VAT. Payroll taxes accounted for 21% and corporate tax for 11% (Schoonjans et al., 2011).
In the Netherlands this has long been visible. An old Dutch study of 1,053 businesses, included in the review by Eichfelder and Vaillancourt, found that payroll taxes caused 43% of the costs, VAT 29% and profit tax 17% (Eichfelder & Vaillancourt, 2014). Those figures date from the early 1990s and say something about the proportions, not about today's amounts.
Within those taxes, keeping and recording data costs the most. Planning to save tax hardly plays a part in the costs of small businesses (Eichfelder & Vaillancourt, 2014). Anyone who wants to lower the costs therefore looks first at the bookkeeping itself.
How heavy is the regulatory burden for Dutch businesses now?
Heavy, and taxes are only part of it. The government had the regulatory burden measured at a series of SMEs. These businesses had to meet an average of 64 to 93 legal obligations. The costs ranged from €38,000 to €494,000 a year, depending on the size and type of business (Letter to Parliament on regulatory burden, 29 June 2026).
Those amounts cover all rules, so also environment, health and safety and permits. They do show why tax rules are felt: they come on top of a sizeable pile of other obligations. The same letter lists 51 rules of the Ministry of Finance that are being tackled to reduce the regulatory burden. For 6 of them this had already been achieved by June 2026 (Letter to Parliament on regulatory burden, 29 June 2026).
How do you keep the cost of tax rules low?
By organising the fixed work as efficiently as possible and not doing everything yourself that someone else can do faster. Research finds a link in small businesses between outsourcing more and lower total compliance costs. That is an association and not a proven cause.
According to the review by Eichfelder and Vaillancourt, many small businesses probably rely too much on their own time. They could save money by outsourcing more. Why they do not is uncertain. The researchers mention overconfidence and distrust of outsourcing financial matters as possible reasons (Eichfelder & Vaillancourt, 2014).
The tax authority itself also influences your costs. Belgian business owners who experienced their tax authority as customer-unfriendly had compliance costs about a quarter higher. This concerned unclear information, slow answers and hard-to-find contact points. Costs for external advisers in particular went up (Eichfelder & Kegels, 2014).
Record everything properly once
Keeping records is the most expensive step. A fixed routine for receipts and invoices saves time on every return.
Count your own hour
Your time spent on VAT and payroll taxes is also a cost. Compare it with what outsourcing costs.
Do not leave savings unclaimed out of convenience
People leave deductions unclaimed to avoid paperwork (Benzarti, 2020). Good bookkeeping makes claiming real costs simple.
The key point: tax rules cost a small business more than just the tax, and those extra costs weigh more heavily on you than on a large business. You cannot make them disappear, but you can limit them by organising the fixed work smartly.
Sources
- Schoonjans, B., Van Cauwenberge, P., Reekmans, C. & Simoens, G. (2011). A survey of tax compliance costs of Flemish SMEs: magnitude and determinants. Environment and Planning C: Government and Policy, 29(4), 605-621. doi.org/10.1068/c10177b
- Benzarti, Y. (2020). How taxing is tax filing? Using revealed preferences to estimate compliance costs. American Economic Journal: Economic Policy, 12(4), 38-57. doi.org/10.1257/pol.20180664
- Eichfelder, S. & Kegels, C. (2014). Compliance costs caused by agency action? Empirical evidence and implications for tax compliance. Journal of Economic Psychology, 40, 200-219. doi.org/10.1016/j.joep.2012.08.012
- Eichfelder, S. & Vaillancourt, F. (2014). Tax compliance costs: A review of cost burdens and cost structures. Hacienda Pública Española / Review of Public Economics, 210(3), 111-148. doi.org/10.7866/HPE-RPE.14.3.5
- Minister of Economic Affairs and Climate Policy (2026). Approach to regulatory burden and administrative costs, letter to the House of Representatives, parliamentary paper 29515, no. 501, 29 June 2026. officielebekendmakingen.nl