SMEs burdened by increase in compliance costs over past two years

The average small business today pays substantially more on compliance costs than in 2011, finds research.

The total cost of compliance is more than £18.2 billion – an 8.5 per cent increase compared to 2011, new findings from the Forum of Private Business (FPB) show.

The Forum research also reveals that companies are paying 11 per cent more to external providers of payroll and tax support compared with two years ago, a circumstance which the FPB says is attributable to the introduction of Real Time Information.

Since the Forum’s last study, taxation compliance remains the single biggest outlay for small firms, followed by employment law, with health and safety third.

FPB policy adviser Robert Downes says, ‘Our research shows little has changed in terms of what’s costing small business the most for compliance costs. The stand-out surprise though has to be the huge increase in spend on external contractors.

‘We believe this is largely down to RTI, and firms having to pay a payroll specialist to manage their employees’ PAYE bills, but by contrast businesses are paying out slightly less on internal compliance managed in-house. The logic here seems to be to pay an expert to do a job they can no longer do themselves, for whatever reason that may be.’

Prior to RTI being launched in April, HMRC anticipated the cost to small business at £120 million, while the Forum research puts the figure at more than double that at £311 million.

Downes adds, ‘Government number crunchers never seem to get their sums correct, so it’s no wonder small firms are getting jumpy about the cost of pension auto-enrolment, which by its very nature is going to be hugely more expensive than RTI to set-up, deliver, and also maintain.’

There was some good news when it came to health and safety, with internal costs here falling slightly since 2011, according to the Forum’s data. It said this was also likely to fall further after October’s Common Commencement Date when sweeping changes to workplace health and safety are implemented.

‘The changes in October should really see H&S costs come down as the onus shifts to employees having to take more of a responsibility for their own safety in the workplace, and the end of strict liability for employer will mean firms can’t be held responsible for accidents beyond their control,” said Downes.

Further reading on tax and VAT

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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