Red Tape costs increase for small firms, says Forum

Despite government promises to reduce the amount of time and money businesses have to spend on compliance costs, the average SME is paying 8.5% more now than it was in 2011, according to new research by the Forum of Private Business. It puts the total cost of compliance at more than £18.2billion.

The Forum research also shows firms are paying 11% more to external providers of payroll and tax support compared with two years ago, which the employer support organisation said was most likely a result of the introduction of Real Time Information (RTI) – the new HMRC payroll process introduced in April, which all firms with employees have to use.

As in 2011 when the Forum carried out its last cost of compliance study, taxation compliance remains the single biggest outlay for small firms, followed by employment law and then health & safety.

Robert Downes, policy adviser 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. 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. 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,” he said.

Before the launch of RTI in April, HM Revenue & Customs predicted the cost of the scheme to small business would be £120million. The Forum research puts the figure at more than double that at £311million.

“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,” says Downes.

There is some good news for small companies from the Forum research when it comes to health & safety. Here, internal costs are falling slightly – and the Forum predicts further falls after October’s Common Commencement Date, when sweeping changes to workplace health & safety regulations 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. The end of strict liability for employers will mean firms can’t be held responsible for accidents beyond their control,” says Downes.