Small firms turn to consultants for compliance

Small firms pay almost £6 billion a year to outside consultants in exchange for support on complying with regulations - more than a third of their £16.8 billion annual red tape bill.

Research by the Forum of Private Business shows more than two thirds of respondents have seen consultancy costs rise since 2009, when the previous 'cost of compliance' research took place. It found that small firms pay external contractors £5.8 billion for regulatory compliance services, while internal time costs total £11 billion.

On average each firm pays £4,900 per year to companies offering legal guidance, including advice on employment, health and safety and tax. Half of that amount is needed for tax advice from specialist consultants and accountants.

The Forum's Chief Executive Phil Orford, said: "Small businesses face a constant struggle to control costs – particularly in the current economic climate – but are being thwarted by the mounting tide of red tape they have to negotiate every day.

"With just a month to go before October's common commencement date there is no hiding from the fact that red tape compliance costs – including steep consultancy fees – are hindering job creation and, by extension, economic growth.

"Unlike large companies, small firms simply do not have internal resources dedicated to complying with regulations, so either the business owner or a key senior manager is forced to devote a large amount of time to this task – an average of almost 40 hours each month – or they have to pay for an outside consultant, which can be extremely expensive."

In all, firms with fewer than 10 employees pay an average of £4,346 per year for the services of outside consultants, those with 10-49 staff face average annual bills of £7,277 and firms with over 50 employees pay contractors an average of £10,815 each year.