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Cost of compliance continues to rise for small firms, Forum research shows

Despite continued government promises to reduce the amount of time and money spent on keeping up to speed on regulation changes, the average micro, small and medium-sized employer in 2014 has seen an above inflationary rise of £713 in their annual compliance bill. 

That’s according to research by the Forum of Private Business which puts the total cost of compliance at more than £19.2 billion – a 4% increase compared to 2013. Smaller businesses in particular have been hit the hardest, with the compliance bill for firms 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 Forum research showed the amount firms are paying to external contractors was the major contributory factor for the rise increasing by 6%, twice as fast as the internal costs to the business. The employer support organisation said this was 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.

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

Surprisingly, time as opposed to cost was seen as the main impact of the regulatory changes. Almost 40 per cent of businesses surveyed said the time needed to understand and implement the various changes had 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).

Commenting on the findings, Phil Orford MBE, chief executive at the Forum of Private Business, said:

“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.”

 

Prior to RTI being launched in April 2013, HMRC anticipated the cost to small business at £120m, while the Forum research puts the figure at more than double that at £311m.

“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.”

A full copy of the report findings can be accessed here

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