Tuesday 27 March 2007

FSB red tape myths

The FSB (that's the Federation of Small Businesses not Federalnaya Sluzhba Bezopasnosti) keeps bandying around this figure that owners of small businesses spend an average of 28 hours a month filling in forms for the Government. Google helpfully finds me nearly 50 FSB press releases citing this statistic.

But I think it is codswallop.

28 hours a month is nearly one whole day a week. There is no way we (let alone me personally) spend a whole man-day a week filling out regulatory paperwork. What can all these forms that other businesses are filling out possibly be? Here are the tasks we do which involve some sort of statutory "paperwork":

The additional statutory burden of administering payroll is practically zero. We'd have to check everyone's hours, number of jobs they'd done, etc. even if we weren't also deducting payroll taxes on behalf of the government. The calculation of payroll taxes takes milliseconds because, like everyone else, our accounting software (QuickBooks) does it for us. Although maybe there are people out there who still calculate payroll deductions manually? It was only last year I think that the Inland Revenue finally stopped sending us a big book of tax and NI deductions every April. They really did send this huge series of tables where you could look up in one column what you were paying someone, and then look across to another column how much tax and NI you should deduct. I mean, really, why would anyone in their right mind ever bother doing that, when payroll software is practically free (I think we pay a princely £70 a year to keep our QuickBooks payroll tables up to date, plus a few hundred quid every few years to buy the newer version of QuickBooks itself).

Once a year, we "fill out" (i.e. print) P35/P14 forms, but there is zero, zero, zero paperwork required during the year - we just send the cash to HMRC once a month (OK, so that takes 5-10mins to check the amount, go online, send the payment). I probably spend maybe 1-2 hours preparing our annual return (which consists of getting QuickBooks to prepare the figures, me check them over, then instruct QuickBooks to zap them over to the HMRC website, and er, that's it).

So that's, say, 2 hours a year = 10 minutes a month, plus the 10 mins to send our monthly tax/NI pot to HMRC, so 20 minutes a month.

CIS Scheme (yes, I know, an example of RAS syndrome)
I do moan about this to anyone who will listen, but it doesn't really take that much time (to comply with, rather than to moan about). I moan because I dislike the fact that we and any subcontractors that we use are assumed to be fly-by-night tax avoiding scamsters unless we jump through a few hoops to prove otherwise, just because HMRC deems us to be operating in the "construction industry".

(CIS=Construction Industry Scheme. Basically a system whereby anyone operating in the "construction industry" claiming to be a subcontractor, not an employee, is assumed to be telling porkies unless they specifically prove otherwise. In practice if we pay an invoice from any small subcontractor -- whether an individual or a limited company -- we have to deduct 18% of it and send straight to HMRC, because HMRC assume said subcontractor is fiddling his taxes. Said subcontractor is of course not fiddling his taxes, and has to offset the deduction he has suffered against his true tax liability for the year).

For us, we have to fill out a little voucher each month summarising any payments we have made to subcontractors and pop them in the post to HMRC. This probably takes us 20 mins per month. The actual cash we deduct we just lump in with our real payroll taxes and pop that over to HMRC, so I have included the time taken to do that already. And even the monthly paper vouchers (which are a bit silly) are being abolished in April, and we'll only have to make a single annual return, just like we do for real employees.

So, at an extra 20mins for CIS (which will be nearly zero after this month) we are now at 40mins per month.

VAT return
I hear other SMEs really moan about this, but I just don't get it. As long as you are keeping accurate accounting records (and how can you run a business without them) filing your VAT return takes minutes. Our version of QuickBooks (2005 Pro) can't actually send the return directly to HMRC yet, we still have to type four numbers onto the HMRC website four times a year, but it really doesn't take a significant amount of time. Let's give it 30mins per quarter, 10mins per month, taking us to 50mins per month in total.

Annual Accounts
Spend a fair bit of time on this, but not to satisfy any regulatory requirement really. I'd want my accounts to show a "true and fair" picture whether or not I had to submit them to Companies House. Indeed, the version we actually submit to Companies House is far simpler than the version we use for internal management purposes (note I'm saying simpler not different. The two versions are of course based on the same figures, but we only have to file a summary balance sheet to Companies House, whereas we have a detailed P&L and a detailed balance sheet for our management accounts. Plus a stack of fancy metrics churned out from our super-dooper schedule / job / customer management software).

And our Corporation Tax return is based on pretty much the same figures, with a few adjustments (some small bits of expenditure we'd consider to be business expenses while taxman doesn't; depreciation becomes capital allowances; etc.). I suppose our accountants maybe spend a couple of hours a year on those bits. Let's allow them a half-day, four hours, 20 mins a month.

Then we have a bit of health & safety stuff. Very little time required on a regular basis, occasional few minutes filling out the Accident Book, a few more minutes, maybe half-hour, going on line to report the rare accident that requires a RIDDOR notification, annual review of our "stuff" for which I'd generously add an hour a month, maybe two if we really went to town on our annual review and spend a few man-days on it (like we did last year, see posts passim).

So I'm at something like 3 hours a month, and I just can't see how I could get to 28 hours a month. Are we missing something? Is there some huge raft of paperwork that everyone else is completing which we are just missing?

I think this whole red tape thing is mostly a myth, perpetuated by business lobby groups (I'm sure FSB is not the only one) and other businesses. Certainly some specific industries (waste management? farming? food preparation? house builders?) do have much larger regulatory burdens. Would that be enough to skew the average so heavily? FSB's stat is presumably the mean figure from some survey. Maybe the median would be more meaningful if there are some sectors massively burdened by red tape while the majority are not?

But you have to have some regulation to keep the real charlatans and scamsters in check. Are there any developed countries with less red tape than us? I doubt it. United States certainly regulates SMEs more closely, mainland Europe too. South East Asia? Not sure. Australia / New Zealand? Building regulations are certainly more onerous (e.g. re-tiling your bathroom requires a "waterproofing certificate"), don't know much about business regulation generally down there.

(On a non-business note, I am also a paraglider pilot. Paragliding in the UK is almost completely self-regulated, the CAA basically leaves it to the British Hangliding and Paragliding Association to make sure its members are trained and fly sensibly. I don't think any other countries do this. Certainly Germany and France have proper legal requirements to fulfill before you can throw yourself off a hill with a glorified parachute on your back, similar to what you'd need to fly a real plane)

We should be celebrating the fact that the UK runs so well, with such limited bureaucracy. By constantly harping on about "red tape strangling business" I think the FSB et al are being counter-productive. A civil servant contemplating some new regulation is going to think, hey, if these guys are already doing 28 hours a month of red-tape-complying, what difference will it make if my new regulation adds an extra half-hour or so? But if he thinks we are just doing 3 hours a month, then an extra half-hour is a huge increase and, maybe, Mr Civil Servant will just shelve his regulation, or work harder to make it less burdensome.


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