Compliance costs soar for small firms, says new study

A study conducted by the Forum of Private Business reflected that the total cost of compliance was at more than £18.2bn this year, compared to £16.8bn in 2011, despite government promises to reduce the amount of time and money businesses spend on compliance costs.

The research also demonstrated that small firms are paying 11% more to external providers of payroll and tax support than they were two years ago. The employer support organisation said this was most likely down to the introduction of Real Time Information, a new Her Majesty’s Revenue & Customs (HMRC) payroll process introduced in April, which all firms with employees have to use.

Taxation compliance remained the single biggest outlay for small firms, followed by employment law second and health and safety third, as in 2011 when the Forum conducted its last cost of compliance study.

Internal costs for health and safety, however, dropped slightly since 2011, and are likely to continue to fall after October’s Common Commencement Date when sweeping changes to workplace health and safety are implemented.

The Forum’s policy adviser Robert Downes said: “Our research shows little has changed in terms of what’s costing small businesses 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,” he added.

Prior to RTI’s launch in April, HMRC anticipated the cost to small business would be £120m. The Forum’s research shows a figure at more than double the estimate at £311m.

Downes continued: “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.

“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.”