Cicero Policy Briefer

Issue 4, September 2006

SMEs and the increasing regulatory burden

By Mike Fagan

“If only I were paid for being a government tax collector.” In my role as an accountant who provides services to the small and medium sized enterprise (SME) sector I hear this plea with increasing regularity these days.

“The internet provides a big opportunity for the Government to further improve the attractiveness of the UK as a place to start a business”

Despite the Government’s commitment to simplify the whole process of regulatory reporting for SMEs, the burden is proportionately more than it was 10 years ago and shows no sign of becoming any less daunting for a would-be entrepreneur.

A look at the government agencies involved in small business regulation reveals the extent of the problem:

Companies House for

Company formation
Statutory accounts
Annual returns
Shareholdings
Company officers’ details

Her Majesty’s Revenue & Customs (HMRC) for

Corporation Tax, R&D Tax Credits
VAT, EC Sales Lists
Employee payroll
Personal taxation
Employee Share Schemes
Pensions (Stakeholder and Occupational)

DTI and Regional Government Finance agencies for

Grants
Small Firms Loan Guarantee Scheme
Mentoring programmes

There are also a bewildering number of annual, quarterly and monthly deadlines to remember for Statutory Accounts, VAT, Payroll Taxes and so on. Rather than encouraging small businesses to meet their commitments, missed deadlines result in an inconsistent application of warnings, fines, and other statutory powers, which are hard to understand and rationalise.

So what do most SMEs do when faced with this array of obligations? In most cases they will turn to an accountant for much-needed advice on identifying their obligations how to fulfil them. They will also tend to outsource the major tasks. This has a cost attached to it, which most SMEs could well do without.

The Government has made considerable progress in providing a series of online services for much of the required reporting for example:

Certain elements of company details
HMRC Corporation Tax, VAT and annual payroll returns

While these are welcome improvements over their paper predecessors, I suggest that the benefits are being enjoyed by the SME’s accountant rather than the company. With each online return there remain complicated instructions and notes on how to complete it, which have not changed over their previous paper counterparts.

The Government have tinkered with new online services and in the case of payroll annual returns, even offered cash incentives to use them.

The internet provides a big opportunity for the Government to further improve the attractiveness of the UK as a place to start a business. Rather than the commonly heard statement that “the UK is an easy place to hire and fire people”, we do have a better and more laudable opportunity to simplify the regulatory framework for small businesses into something that is both simple and ‘joined-up’, providing a single point of contact for the SME.

The effect on the UK economy will be to stimulate the number of new businesses and reduce the time spent on unpaid reporting to the Government.

A brave decision now will undoubtedly provide a significant legacy for one of our politicians.

Mike Fagan can be contacted on +44 (0)20 7665 9530 or click here to email.

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