The government fails to remember its promise to help SMEs

Is my memory failing or was one of this government’s routes to power via the promise to champion SMEs and make it easier to run a business in Britain? I’m having trouble believing that promise with this April’s legislative shake-ups on the employment front.

Changes to the PAYE system

Fondly monikered Real Time, these changes will be implemented as of 6 April. All employers must submit details of pay and deductions for all employees before they are paid. After a changeover, this will have moderately little influence on the administration for full-time staff. However, it is not predominantly about changing the rules for them. These changes most seriously affect companies employing temporary workers and casual labour. Instead of a mop up declaration at the end of the year, each and every submission will have to be carried out prior to paying them by someone knowledgeable enough to do so.

Who uses temporary and casual workers? SMEs often keep their staffing levels low to slash costs but rely on this workforce to cover illness and seasonal peaks of work. These companies do not have full-time, in-house, wages administrators to submit information to the revenue on a daily basis. Many companies still lack computerised software, relying on spreadsheets to do their accounts instead. I am sure they bless their championing government as they dip their hands into their pockets for yet another necessary investment in software, and/or staff training to operate the schemes and anticipate the extra workload ahead.

What will happen? Either the SMEs administrative costs will soar by using in-house administrators or sub-contractor or they will stop using temporary labour. This will make them become less flexible and less competitive in already difficult markets. The final alternative is that, inevitably, there will be a huge rise in under-the-counter payments and everyone will lose revenue – least of all the government and the honest tax payer.

The government pension scheme

The country is broke. Yet again, business is having to pick up the tab. Pension obligations cannot be met and not only are businesses having to enforce self-contributions, they are having to carry out the role of collection, investment and contributing themselves.

The new laws insist that all employees are automatically enrolled into a qualifying pension scheme which they have to select from private or government run schemes. This is being brought in at monthly tranches depending on the size of the company, but will have already hit companies with under 1,000 employee’s by the end of 2013 and companies with 50 or more staff by April next year. The contributions vary in amounts, depending on the salary. This will continue to rise until at least 2018, by which time the employer will be contributing an extra three per cent.

The beleaguered SME can confidently look at rises in their administrative costs during the coming year from Real Time PAYE and problems over flexible staffing arrangements. In addition, they have the joyous knowledge that over the next three to four years, not only are they going to continue their fight for survival, they will have to juggle rewarding the employee with the enforced rises to their wage bill. The employee will probably not see it in his/her pocket.

I am no economist, but even I can work out that the current government is going to leave a legacy of inflation behind.

One of the ironies is the prediction that large companies already running company pensions will take advantage of the new scheme by cutting the amount they contribute on higher paid employees. Many pay between six and ten per cent on the new scheme. Firms will leap on this opportunity to slash costs with the employee and, ironically, the government coffers will be the losers.

As the government continues to ignore its promises of understanding and helping SMEs, we have (at tax payers’ expense) the likes of Theo Paphitis and Nick Hewer bouncing all over our TV screens. We see them rubbing their hands with glee over the new schemes saying, “And best of all, if you pay in, your boss does too.” In other words: “This is a good way to sting your boss.” Most employers work slavishly to encourage ever improving relationships with our staff and to ensure they feel we work together through these difficult times. This message is mis-judged, outdated and unhelpful – those are just three very polite words I can use for the situation.

Jan Cavelle is the founder of Jan Cavelle Furniture Company.

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