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July 18, 2014 - Mark Williams

Small firms' compliance costs continue to rise

Small firms' compliance costs continue to riseThe Forum of Private Business (FPB) says that despite repeated government promises to reduce red tape and the time and money required to keep track of regulatory changes, the average UK SME annual compliance bill in 2014 rose to £713, ahead of the inflation rate.

Research carried out by the organisation estimates total UK business compliance costs of more than £19.2 billion in 2014 – a 4% increase on the 2013 figure. Micro firms (those with nine employees or fewer) have been hit hardest, with their average annual compliance bills equalling £164 per employee – seven times more than for medium-sized businesses (with 50 employees or more).

According to the FPB, a key reason why costs had increased was that many firms now pay external contractors for compliance advice and services. Last year, this was fuelled by small firms seeking guidance on introducing Real Time Information (RTI – the new HMRC PAYE reporting requirement) and workplace pension scheme auto enrolment, as well as sector-specific regulations.

As in 2013, tax compliance remained the biggest outlay for small firms, followed by employment law, then health and safety. The research found that the main impact of regulatory changes was not confined to financial cost. Almost 40% 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 £1bn on 2013 (£984m).

Phil Orford, Forum of Private Business chief executive, 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 many firms having to pay a payroll specialist to manage PAYE. In addition, we've seen the increasing need to employ specialists to advise ahead of pensions auto enrolment."

Before RTI was launched in April 2013, HMRC estimated the total cost to small businesses would be about £120m, but the FPB says the actual figure is nearer £311m. Orford added: "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 maintain."

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