The Government's policy to modernise the UK tax system could cost the small business community £25 billion per year to cover admin costs, according to the Federation of Small Businesses (FSB).

Making Tax Digital (MTD) aims to simplify the tax process for individuals and businesses to get their tax right by requiring them to send data to HMRC using compatible accounting software.

But MTD will cost £2,690 for businesses that have not yet switched to the system, and £4,562 for businesses that have already joined the scheme, the FSB said.

Much of these compliance costs will come from subscriptions, according to the organisation, which may increase in price as MTD is rolled out to other parts of the tax regime.

The figures stand in sharp contrast to HMRC figures on the costs of MTD for income tax self-assessment:

average transitional cost of £330 for businesses
average annual cost of £35.

FSB national chairman, Mike Cherry, said his organisation still supports a digitalisation of the tax regime as "reducing the huge amount of time and money lost to tax bureaucracy would free up billions for investment".

"However, for many of those who've already taken the plunge, the programme has so far wielded higher costs and greater complexity," Cherry added.

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