Red tape weighs on SMEs: research

Australian small and medium enterprises say they are burdened by the complexity of regulation, according to a global study of tax professionals by the Association of Chartered Certified Accountants.

The research, ACCA Accounting Services and SMEs: An Australian Study, was authored by Dr Philomena Leung and Dr Jean Raar of Deakin University.

According to the study, 80 per cent of SMEs are concerned about the number of regulations affecting business while 77 per cent were worried about understanding the complexity of regulations, including superannuation, payroll, employment, taxation, environment, and health and safety.

"Australia's complex regulations are burdening SMEs, stifling innovation and potentially inhibiting economic growth," ACCA panel member Mike Dixon said.

"Without the internal resources to manage the ever-changing regulatory landscape, SMEs feel the impact of regulation more-so than larger businesses - and it may actually deter new businesses from starting-up.

"Business owners want to see improvements to prevent overlaps and inconsistencies in state and federal regulations to reduce the disproportionate impact on SMEs."

SMEs, which account for about 95% of all businesses in Australia and employ over 3.3 million people, are turning to external sources, in particular accountants, to help them keep on top of regulatory requirements.

"Depending on the industry and location in which businesses operate, SMEs face hundreds of regulations, including 1500 Commonwealth Acts, Commonwealth statutory rules and state government regulations," Mr Dixon said.

"Recently SMEs have had to cope with the introduction and then abolishment of WorkChoices and changes to superannuation. Others include variations between states in relation to payroll tax - so it is no wonder SMEs are worried about meeting regulatory requirements."

Between 70 per cent and 80 per cent of SMEs agree regulations are reasonable, however the main issue is how government and other regulators implement regulation to avoid complexity and overlaps.

"The study found that 77% of SMEs had concerns about the volume of regulation and staying up to date with new or changed requirements. For example, SMEs need to keep up to speed with a broad range of taxes including WorkCover, payroll tax, superannuation guarantee, income tax, company tax - which can be a huge burden on a small enterprise" he says.

In addition to concern about the amount of regulation, the report found 66 per cent of SMEs are worried about the cost of regulation in proportion to the size of the business.

Not surprisingly, businesses with less than 10 staff are the most concerned about this issue, with an even narrower revenue base over which to spread the cost of compliance

When seeking advice to satisfy regulatory obligations, 72 per cent of SMEs turn to external accountants.

Small businesses with fewer than 10 employees are the most reliant on accountants for advice, instead of updating their own knowledge of regulatory requirements.

"Small business owners view accountants as their most trusted adviser and regularly turn to them for guidance and advice. 79% of SMEs seek advice on tax, such as GST, and 77% seek guidance on superannuation requirements," Mr Dixon said.

The study also found accountants often consider their role to be a conveyor or adviser for SME clients, with 79 per cent of accountants referring SME clients to external professional advisers.

Other than accountants, 62 per cent of SMEs seek advice from federal government agencies, 61 per cent from trade and industry bodies and 53 per cent from lawyers or solicitors.

"While accountants advise clients on most business matters, they also find it important to refer SMEs to specialist professionals who can provide them with the advice for specific issues. For instance, very few accountants in Australia would be comfortable in giving advice relating to environmental or health and safety regulation," said Mr Dixon.

The report also found it isn't just SMEs who are concerned about red-tape, with 73 per cent of accountants citing that regulatory requirements created a competitive disadvantage for their SME clients.

"While the federal and state governments have established reviews of business regulation, differing agendas between levels of government have contributed to the failure of a common legislative framework for SMEs.

"Practical options to reduce the red tape burdening more than 1.2 million small business owners are needed," Mr Dixon said