NEW BUSINESS:Small businesses are being hampered by too much form filling, but budget changes will ease the burden

Red tape is first noted in historical records in the 16th century, when Henry VIII besieged Pope Clement VII with around 80 petitions, each one sealed and bound with the obligatory red tape of the time, for the annulment of his marriage to Catherine of Aragon.

That volume of form filling will strike a chord with many businesses in Ireland today. Small businesses and start-ups are expected to complete hundreds of core forms per annum, some a number of times, to comply with the requirements of many state bodies including the Revenue Commissioners, the Central Statistics Office, the Companies Registrations Office and several Government departments, according to the Isme, the organisation that represents small business.

Isme's chief executive, Mark Fielding, says that red tape and administrative bureaucracy is adding the equivalent of 4 per cent of turnover in costs and is a barrier to market entry and a significant impediment to business expansion.

"It is one of the top three or four reasons why people thinking about setting up a business don't follow through on their plans," says Fielding.

Addressing an Isme briefing in Cork in September, Fielding told the audience that in order to comply with legislation and regulations, small business owners are forced to read, understand and implement almost 1,000 different major legislative issues that impact on their business in areas including taxation, industrial relations, auditing, environmental issues and health and safety, among others.

Regulations are imposing costs and inflexibilities, which frustrate enterprise, hamper innovation and deter investment, according to Fielding. He is calling for the Standard Cost Model of addressing administrative burdens which has been introduced in the Netherlands and the UK, saving millions, to be implemented here.

"The Standard Cost Model" is a method of measuring the cost of filling in a form for a business how long does it take you, who can do it, do you have to get your accountant in? They will multiply that by the number of forms that are filled in every year by the number of businesses that fill in those forms and they come up with an actual figure. That is the cost of that burden. Once you can measure the cost of burdens then you can actually reduce that cost.

A classic example is the annual Form B1 detailing the directors of a company and the other directorships they hold, he says.

"If there is no change, you still have to fill that in every year, year after year. We're saying there should be no need to fill in the form unless there is a change," he says.

The Government has moved to address the red tape problem and has prepared Regulating Better, a Government White Paper that it says will contribute to improving national competitiveness and better Government by ensuring that new regulations are more rigorously assessed in terms of their impacts and more accessible to all. Existing regulations will be also streamlined and revised, where possible.

"It is all very well to come up with proposals, but implementation is very important," cautions Mark Redmond, chief executive of the Irish Taxation Institute.

Nevertheless, Redmond said Budget 2008 underpinned the important role of small business in the Irish economy and built on measures introduced last year.

"Broadening of the BES qualifying criteria, increasing the registration thresholds on VAT for SMEs, widening the corporation tax threshold for small companies and expanding thresholds on preliminary tax arrangements for start-up companies will help business do business."

A number of measures were introduced in Budget 2007 designed to cut red tape and streamline tax compliance.

Key among these was a provision that start-up companies would not be required to pay preliminary tax in their first year of operation and can, instead, pay their actual liability the following year. Small firms will only have to make two or three VAT returns a year, not six, while changes in Budget 2008 will see the small business VAT registration thresholds increase to €75,000 for goods and €37,500 for services. This measure will take about 2,700 businesses out of the VAT system.

But businesses may be their own worst enemies in failing to avail of some of these measures, particularly the removal of the requirement to pay preliminary tax in the first year of operation.

"That is a tax holiday for your first year of trading. It is very valuable for cash flow, but again our polling is showing only 40 per cent of small business are aware of this development," says Redmond whose organisation commissioned Red C to look at the burden on small business in relation to tax administration.

It found that the revenue online filing system (Ros) is a very positive development and helps to reduce the tax administration burden on business, yet only 50 per cent of businesses were using it.