Compliance costs crippling small businesses

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Running a small business entails many challenges as you strive to grow your company in a creative and innovative way. It’s no wonder then that many small business owners feel their pockets are being picked as they’re dragged down by the ever increasing costs of towing the compliance line.

It seems this costly burden is impacting companies more and more every year. In fact new research by the Forum of Private Business has shown that the total cost of adhering to compliance in the UK is more than £19.2 billion, a 4% increase compared to 2013.

SMEs (small and medium enterprises) are particularly hard hit as companies with less than nine employees are being left with a compliance bill, per employee, that is almost seven times the cost of companies with 50 or more workers.

Where is the money going?

It appears one of the biggest problems is the amount firms are paying to external contractors, which is growing twice as fast as internal costs.

These rises are most likely down to costs associated with the end of an SME extension to introducing the new HMRC payroll process, Real Time Information, as well as the introduction of auto enrolment for pensions.

Taxation compliance is still the single biggest outlay for small firms, followed by employment law and health and safety.

However, it’s not only the monetary costs which are impacting small businesses, it’s also the amount of time which needs to be spent complying with regulatory changes that is a problem.

Lost opportunities costing businesses billions

In fact almost 40% of businesses surveyed said the time needed to understand and implement various changes had the most significant impact on their day-to-day operations. The Forum of Private Business says this is costing firms a total of £38.85 billion in lost opportunities, up by almost £1 billion on 2013.

Phil Orford MBE, chief executive at the Forum of Private Business, said: “Little has changed in terms of what’s costing small business the most for compliance costs, with external costs continuing to be the main contributory factor.

“We believe this is largely down to the introduction of RTI, following the end of the small business extension, and firms having to pay a payroll specialist to manage their employees’ PAYE bills.

“In addition we have seen the increasing need to employ specialists to advise ahead of pensions auto-enrolment.

Impact of regulation on business

The government often underestimates the impact of regulation on businesses, so it’s no wonder small firms are getting increasingly concerned about the cost of pensions auto-enrolment, which by its very nature is going to be hugely more expensive than RTI to set-up, deliver and also maintain.”

So, despite continued government promises to reduce the amount of time and money spent on keeping up to speed on regulation changes, the average SME in 2014 has seen an above inflationary rise of £713 in their annual compliance bill.

It therefore seems that we need more simplification of legislation in the UK, and if any changes are made there should be much better communication of what needs to done to comply. It’s also time there was a better understanding of smaller businesses, as many rules and regulations are based on best practice in the public sector or larger organisations.

Overall new legislation should always bear in mind the effect it will have on a smaller company first, this way the costs of compliance for SMEs might begin to ease.

What do you think about the costs of towing the compliance line for small businesses? Let us know in the comments section below. 

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