SMEs spend £7k a year dealing with rules and regulations
Jacob Grattage, Reporter, Business & Accountancy Daily
Rising burden of compliance and multiple regulators means SMEs face annual £36bn bill with 67 hours a year spent dealing with bureaucracy
With 40% of SMEs forced to deal with four or more regulators and government bodies including Companies House and local authorities the annual cost of compliance is soaring with the average SME paying £7,100 a year, found research from the Playing by the Rules report from the Federation of Small Businesses (FSB).
The FSB said the annual cost of complying with regulation was £36bn in 2025 for SMEs with these companies cumulatively spending 379 million hours of work a year on red tape and bureaucracy.
For SMEs with more than 10 staff the annual bill was £12,600 on average, while under nine employees it was £6,200, and £2,500 for sole traders.
The majority (70%) of SMEs have to deal with more than one external regulator or government body, with 40% said they work with four or more.
Top of the list was Companies House (57%), followed by local authorities (45%) and the Information Commissioner’s Office (44%) for data protection issues. A third cited The Pension Regulator (34%) for auto enrolment pensions, with least contact with Trading Standards (17%) and the Financial Conduct Authority (11%).
HMRC was not included in this year’s survey but a FSB report last year identified a £26bn annual SME bill for tax compliance.
Their biggest problem for SMEs is the time it takes to ‘resolve complaints and concerns’ with regulators, as 40% said it was ‘not easy’ and 41% said they do not get a quick response when they need help.
They also criticised the quality of guidance, with 41% saying it was ‘not easy to understand’, while 40% said it was ‘not even easy to locate’.
Tina McKenzie, policy chair for the FSB said: ‘The annual cost of compliance for small and medium-sized businesses is staggering.
‘If those enormous totals could be reduced by the 25% target the government has set itself, some £9b in financial cost and 95 million hours could be returned to small businesses to invest in their operations and futures.’
Where regulators have acted, nearly half (46%) of SMEs said they have a ‘strong enforcement approach’, while 42% said they ‘assume wrongdoings or a breach even before engagement’.
The majority of SMEs think regulators ‘treat them unfairly’, with 43% saying they were ‘unfairly treated, and one in five (19% ) going so far to say they were treated ‘not at all fairly’. Only 23% said they were ‘treated fairly’.
There is a wide held view that the rules are written for large businesses and do not take into account the needs of SMEs, with 43% saying regulators ‘do not consider the ability of small businesses to comply with rules’.
The FSB is calling on the government to take a holistic view of the regulatory landscape, instead of picking off individual rules for reform without considering the unintended consequences.
McKenzie said: ‘If the government were to bring groups of regulators together and conduct theme-based reviews of regulation, rather than reviewing regulations individually, this could be an enormous step forward.’
Regulators also need to make more effort to understand the needs of smaller businesses.
‘Regulators themselves rather obviously also have a huge part to play,’ she added. ‘Their commitment to helping small firms with compliance needs to be more than lip service, and tailored resources are a must, alongside real-world examples and clear guidance.’
