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Forum of Private Business

Increasing red tape leaves small firms in London with a £3.2 billion bill for annual compliance costs

23 July 2015 10:30

UNDER EMBARGO UNTIL 23 July 2015 10:30

Although there is uncertainty about the economic recovery, there is no doubt that the administrative costs in the capital’s small firms is increasing.

• Red tape costs business in the region £3.2 billion or £1,830 per job
• Internal compliance costs have risen to £2.1 billion
• Consultants account for £1.1 billion, a slight reduction on 2013
• Forum members spend slightly less time on compliance but 50% less on external consultants than other firms.

Red tape now costs SMEs in the capital just under £3.2 billion. This means that compliance with legislation now costs such firms £14,800 each or around £1,830 per employee – according to research from the Forum of Private Business.

Internal compliance costs have risen to £2.1 billion, eclipsing the modest savings on external consultants which has dropped to £1.1 billion.

On average, each firm in the region hands over approximately £4,800 per year to companies offering legal guidance, including advice on employment law, health and safety and tax – around a third of their £14,810 annual compliance bill, which includes internal time costs.

The not-for-profit Forum’s research shows that the combined annual amount paid by London’s small firms to consultants for tax advice is in excess of £640 million, external health and safety support costs almost £210 million per year and employment law consultancy services come to £110 million.

“SMEs in the capital continue to struggle to control costs – particularly in the current economic climate – and remain frustrated by the amount of red tape they have to negotiate every day,” said the Forum’s London consultant, Brian Allen.

“Unlike large corporations, smaller firms simply do not have internal departmental resources dedicated to complying with regulations, so it is either the business owner or a key senior manager who is forced to devote a large amount of time to this task – an average of almost 37 hours each month – or pay for an external consultant, which can be extremely expensive.

Private businesses who are Forum members spend slightly less time on compliance than other businesses of their size and around half that of other business on consultants’ fees thanks to our support, however our members in the capital are increasingly concerned about the lack of straight answers from HMRC and other enforcement agencies.”

The Forum has found that SMEs across the UK pay external contractors a total of £6.5 billion for regulatory compliance services, while internal time costs are £13.5 billion in total.

“There is also evidence that the government is failing to consider the implications of regulations on the region’s smallest and most numerous employers as micro businesses are paying almost ten times more per employee than medium-sized firms,” continued Mr Allen.

“Paying commission on holiday pay has been a bolt out of the blue and businesses with fewer than five people say that they simply cannot get shared parental leave to work without it harming their ability to grow.”

“It is vital that companies ensure they have the correct internal processes in place to avoid the hefty fines and damaging consequences of non-compliance but we should be moving towards businesses being able to manage risk rather than spend significant resources on avoiding it.”

In addition to its legal expenses insurance, the Forum continues to help small businesses negotiate employment law pitfalls via its Employment Guide. The new and updated 2016 guide is to be published in October.

The Forum has also bolstered its support for members in light of concerns about tax investigation.

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Notes to editors

Representing thousands of small businesses across the UK – including retail, service providers and manufacturing companies – the Forum is recognised by the Government as one of the six main business support and lobby groups. It uses this position to influence decision-makers in the UK and Brussels on the issues that matter to small businesses.

Media contact for this press release

Thomas Parry
Research Manager
Tel: 07885 888085

Local Contact

Brian Allen
London Business Consultant
Mobile: 07753 738468
Tel: 01375 643030

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Press Contacts

Georgina Hodge

Campaign Communications Executive

Tel: 01565 626036


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