Cost of compliance hits small businesses hard

Small businesses in 2014 has seen an above-inflationary rise of £713 in their annual compliance bill, a study finds.

According to research by the Forum of Private Business, the total cost of compliance is more than £19.2 billion – a 4 per cent increase compared to 2013.

Smaller businesses in particular have been hit the hardest, with the compliance bill for companies with fewer than nine employees being the equivalent of £164 per employee – almost seven times the cost for companies with 50 or more workers.

The study shows the amount firms are paying to external contractors is the major contributory factor for the rise, increasing twice as fast as the internal costs to the business.

This is most likely down to costs associated with the end of the SME extension to introducing Real Time Information (the new HMRC payroll process), auto-enrolment and advice on sector-specific regulations, finds the organisation.

As in 2013 when the Forum did its last cost of compliance study, taxation compliance remains the single biggest outlay for small operators, followed by employment law, with health and safety third.

Time as opposed to cost is seen as the main impact of the regulatory changes. Almost 40 per cent of businesses surveyed say the time needed to understand and implement the various changes has the most significant impact on their day-to-day operations, costing firms a total of £38.85 billion in lost opportunities, up by almost £1 billion on 2013 (£984 million).

Phil Orford MBE, chief executive at the Forum of Private Business says, ‘Our research shows 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.’

Further reading on compliance

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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