Regulating small business

Introduction

In the 2008 Enterprise Strategy, the Government committed to a new approach to the way that new and existing regulation applies to firms that employ fewer than 20 people; to consider simplified or more flexible approaches to find the most effective way to meet intended outcomes and minimise burdens.

This includes considering, from both policy and legal perspectives, whether small firms can be exempt from requirements without affecting essential protections - or if there is scope for simplified inspection, enforcement and guidance. A risk based approach to developing regulation will help deliver better policy outcomes and minimise costs for small businesses.

In addition, the requirement for public explanation of the thinking behind regulation makes departments and other regulators accountable for their approach to regulating small firms.

The commitment consists of:

  • Changing the policy process by introducing a more robust assessment of the different options for small firms when developing new legislation.
  • Identifying where existing legislation can be simplified for small firms.

Both aim to examine the potential for simplification and exemptions.

This web guidance aims to provide you with the information you need. However, if you have any questions about small firms regulation please get in touch with your departmental Better Regulation Unit (BRU).

You can find the BERR short guidance here:

Regulation of small firms: immediate changes to the policy processWord document (134KB)

Why ‘fewer than 20’ full time equivalents?

Small firms find the volume and complexity of regulation especially difficult to manage. And, in companies with fewer staff, the responsibility for regulation is shouldered personally by the owners of the business, instead of being delegated.

Business models do not suddenly change when previously micro companies develop to be classified as small businesses. That is why the new definition asks you to look at those who may struggle more to meet requirements within the standard definitions of micro and small business.

Please note that 20 is not an absolute limit. You are expected to look pragmatically at the sector(s) affected by the proposal and make a judgment on a sensible threshold for potential alternative arrangements. Alternative approaches may be considered for firms with, for example, fewer than 5 or even 17 employees. This flexible approach, supported by strong risk-based analysis, will help deliver better policy outcomes and minimise costs for small business.

The policy development process : What’s changed for policy-makers?

There are changes to the Small Firms Impact Test (SFIT). This contains more information on how to consult smaller firms and describes the types of issues to explore in assessing whether or not alternative approaches may be appropriate.

There are changes to the Impact Assessment (IA) toolkit. This now contains information on how to carry out a more robust assessment of why the proposal does or does not apply to small firms, and what consideration has been given to simplification measures.

Policy-makers need to consider carefully the needs of small businesses when consulting on regulatory proposals. In the evidence base section of the Impact Assessment there will need to be more analysis of how small firms will be treated under the proposed legislation; for example, consideration of risk-based enforcement, or more targeted guidance, through to simply not placing the requirement on small firms.

Parliamentary Process

There are also changes to the information you will be required to submit to Parliament, for both Primary and Secondary legislation. These aim to contribute to making legislation more effective.

Secondary Legislation

For legislation introduced from the beginning of the Parliamentary session 2008/09, policy-makers will have to fill in a new section in the Explanatory Memorandum which asks for the following information:

  • If and why the legislation applies to small business
  • What consideration has been given to minimise the impact of the requirements on small firms; for example, simplified inspection, less frequent reporting, exemptions etc.
  • The basis for the final decision on action taken to assist small business and how it was reached.

Policy-makers will have discretion over exactly how to answer these questions, which are free text, as each instrument is likely to have different relevance for small firms. The purpose is to show that the Impact Assessment process has taken account of small firms.

The Office of Public Sector Information provides further information on what to put in the Explanatory Memorandum.

We have also provided an example of what this section of the EM might look like, based on one of case studies attached at the end of this guide. But this should not be used as a standard text:

Explanatory memorandum: an example based on BERR's corporate law and governance directorate's Companies Act case studyWord document (32KB)

Primary Legislation

This will also apply to primary legislation, but changes to the Explanatory Notes will come into effect from the Parliamentary session starting in 2009/10.

The Cabinet Office provides further information on completing Explanatory Notes for primary legislation.

Record keeping

Simplification Plans

The second part of the Enterprise Strategy commitment is to review existing legislation for potential simplification which can apply to small firms. This part of the commitment will be followed up through the simplification process.

Departments have been asked to add a section in their simplification plan which explains the action taken to reduce the burden on small firms. This applies to both existing and new legislation.

Sharing good practice

Here are some examples of how departments are successfully simplifying legislation for small firms:

Links

 

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