News

July 12, 2013

Cost of tax compliance for small firms rises

The average small business is paying more to manage its tax affairs than two years ago – in spite of government promises to reduce the amount of time and money firms have to spend on tax compliance.

The findings are the result of new research by the Forum of Private Business (FPB). It puts the total cost of compliance at more than £18.2 billion – an 8.5% increase compared to 2011. And tax compliance remains the single biggest outlay for small firms, followed by employment law and then health and safety.

The Forum suggests that rising costs are likely to be related to the introduction of Real Time Information (RTI). Before its launch in April, HMRC anticipated that the cost to small business would be about £120m. However, the FPB research puts the figure at £311m – more than double that figure.

The FPB findings also reveal that small firms are paying 11% more to external providers of payroll and tax support compared with two years ago. However, they are paying slightly less on compliance in-house.

Robert Downes, FPB policy adviser, said: "The stand-out surprise 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. 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."

Auto-enrolment fears

RTI teething troubles are likely to make SMEs nervous about the next big change – the introduction of auto-enrolment for employee pensions – says the FPB. Downes said: "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 report does have some good news on health and safety costs. The FPB's data shows that internal costs have fallen since 2011. And, with sweeping changes to workplace health and safety legislation expected in October, it predicts that the health and safety compliance burden will continue to ease.