Compliance costs wracking up for self-employed

Wednesday 16 July 2014

Limited companies and sole traders are still facing high costs when it comes to compliance, despite promises from the government that they will reduce the amount of time and money spent on following legislation.

According to the Forum of Private Business (FPB), the average micro, small and medium-sized employer in 2014 has seen an above inflationary rise of £713 in their annual compliance bill. This is largely due to the introduction of real time information (RTI), the FPB claims.

Phil Orford, chief executive at the organisation, 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."

The total cost of compliance now stands at over £19.2 billion. This is a four per cent increase on 2013, with smaller businesses baring the brunt of the burden. Indeed, it is believed that the compliance bill for companies with fewer than nine employees equates to £164 per worker. This is almost seven times the cost for organisations with 50 or more members of staff.

Time, rather than cost, has been seen as the main impact of regulatory changes, with nearly 40 per cent of companies claiming the need time to understand and implement various adjustments had the biggest impact. This is estimated to cost businesses a total of £38.85 billion in lost opportunities. This is an increase of almost £1 billion since last year.

In a bid to lower the cost of regulation, the FSB had previously proposed limiting the government to regulating just once every parliamentary term for employment law.

It is believed this will help to lower the cost of compliance for small businesses.

"There have been some very positive changes to the way regulations are made, tested and implemented, but to date businesses are not feeling the benefits," Mr Orford said.

He claims that this demonstrates a disjointure between the intentions of the government and the reality for small businesses. With compliance costs increasing, the problem, the FSB argues, is the extent of regulatory flux.

The body claims that the constantly changing rules surrounding parental leave are a particular challenge. These laws have changed every 18 months on average since 2002.

For companies, this has serious ramifications both in terms of cost and time. Each time legislation changes, staff need to be trained up and administrative burdens outsourced. What's more, conditions get more complicated. According to the FSB, employers could be managing staff absences, for example, under several pieces of legislation at the same time.

By limiting the number of times a government can regulate within any one parliamentary term, businesses will be given greater certainty.

By Victoria McDonnell

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