RTI adds to soaring cost of compliance for small firms

Despite Government promises to reduce the amount of time and money businesses spend on compliance costs, the average SME in 2013 pays substantially more than two years ago - and the introduction of the new tax reporting system, Real Time Information, is a contributory factor.

According to new research by the Forum of Private Business the total cost of compliance is more than £18.2 billion – an 8.5 per cent increase compared to 2011.

The Forum research also showed firms are paying 11 per cent more to external providers of payroll and tax support compared with two years ago, which the employer support organisation said was most likely down to the introduction of Real Time Information – a new HMRC payroll process introduced in April which all firms with employees have to use.

As in 2011, taxation compliance remained the single biggest outlay for small firms, followed by employment law, with health and safety third.

Payroll

The Forum's policy adviser Robert Downes said: "Our research shows little has changed in terms of what's costing small business 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."

Prior to RTI being launched in April, HMRC anticipated the cost to small business at £120m, while the Forum research puts the figure at more than double that at £311m.

Mr 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."