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Cost of Government policy to an average small firm surges £60,000 in just six years

Smaller businesses are spending more than ever on obligations that are a direct result of Government policy, including business rates; auto-enrolment; Insurance Premium Tax; corporation tax; employer NI contributions; the apprentice levy; minimum wage rates; vehicle excise duty and the climate change levy. 

New research commissioned by the Federation of Small Businesses (FSB) shows that VAT-registered UK small businesses are collectively spending £60,000 (15%) more than six years ago on these areas, with the construction sector being worst hit with these rise in costs. That sector has seen a 28% increase.

Small firms each lose an average of £5,000 and three working weeks a year to tax administration and paperwork alone, according to FSB.

Employment costs have soared since 2011. The minimum hourly pay rate for a member of staff over the age of 25 has risen by 29% in that time. The rate is set to increase by a further 5% in April. Employers must also make National Insurance contributions of more than £1,000 a year for qualifying employees and from 2020, their minimum contribution to auto-enrolment schemes will rise to 3% of eligible staff earnings.   
Despite some welcome announcements from the Chancellor in October, small firms are still set to see costs spiral as the result of government policies in the months ahead. The findings come as the UK falls from fourth to ninth place in World Bank’s Ease of Doing Business index.

Mike Cherry, FSB National Chairman, said: “Come the beginning of April 2019, small firms will not only have Brexit day, but also Making Tax Digital, rising employer auto-enrolment contributions and further business rates hikes. This will be a flashpoint for a lot of businesses, one which could threaten the futures of many.

“Small employers have played a massive role in securing record-high levels of employment. Maintaining these levels means providing more support for the small and mid-sized firms that are hit especially hard by policy-linked costs – particularly where staff are concerned. Clearly, the burden placed on business owners as they grow their workforces needs to be looked at.

“Mitigating spiralling employment costs through further enhancement of the Employment Allowance while reforming outdated aspects of the tax regime – not least business rates – would be a good place to start.”