Small business compliance UK – what you need to know | (2024)

Industry regulators are constantly updating regulations and legal obligations – and it can be a real challenge for SMEs to keep up.

Here’s the heads up on the key areas you need to focus on to ensure your small business meets compliance rules and regulations.

Small business compliance UK – what you need to know | (1)

What is compliance for small businesses?

In business terms, compliance is about ensuring companies of all sizes and their employees comply with existing national and international laws.

The Companies Act 2006 is the main legislation that forms the primary source of UK company law.

The main objective of compliance is to avoid or swiftly identify criminal behaviour and react appropriately to it.

And, while making sure every aspect of your operation is being run compliantly may seem a daunting task if you’re running or starting a small business, it’s worth the effort.

Compliance regulations have been put in place to protect you, your company, your employees, and your property.

Along with meeting legal requirements, there’s also an ethical aspect of compliance to consider.

Essentially, a compliant company demonstrates that it’s a reputable business that respects the interests of its stakeholders – such as customers, employees and residents (for example, if you have a factory) – by operating responsibly.

This can have a positive effect on your small business’s credibility and reputation.

What are the main areas of business compliance to consider?

If you’re setting up a company, some of the most important compliance considerations include:

  • Complying with applicable industry regulations set out by professional regulators – for example, the Financial Conduct Authority, the Office of Rail and Road, the Law Society or the Environment Agency
  • Complying with finance regulations – such as tax, payroll, HMRC, accounting, record keeping, Companies House and anti-money laundering regulations
  • Employment law and workers’ rights
  • Health and safety for workers and visitors to your offices/site
  • General Data Protection Regulation (GDPR)
  • Contracts and agreements with third parties
  • Sector-specific permits, licences, permissions

Ensuring GDPR compliance

The EU’s 2018 General Data Protection Regulation (GDPR) governs how organisations process and use personal data to provide consumers with greater protection.

GDPR impacts every aspect of a business– from how you build your customer database to the way you market your business.

Non-compliance can result in a hefty fine – up to €20 million (about £18 million) or 4% of annual global turnover – whichever is greater. There are some exceptions for businesses with fewer than 250 employees.

Since Brexit, GDPR has been incorporated into UK data protection law as the ‘UK GDPR’.

This iteration, which came into force on 1 January 2021, is largely similar in its data protection principles and obligations.

Under GDPR, every organisation that handles personal data needs to be able to:

  • Prove that consent was given to hold it
  • Be able to show what the data is being used for
  • Demonstrate how it is being protected
  • Provide individuals with access and the ability to review, amend or challenge data processing practices

What legal documentation does my small business need?

To make sure your business is compliant, you should regularly review and update all your legal documentation, including agreements, contracts, forms, letters, policies, and procedures.

This applies across the board and covers everything from employment and business law to tax and health and safety.

As an employer, the documentation you need includes:

Employment law: This ensures each employee is protected by specified employment terms, which is a legal requirement and demonstrates that you have the correct policies in place:

  • Employment contracts (written statement of employment)
  • Grievance, disciplinary and HR procedures

Business law: All documentation that registers your business, relates to tenancy and financial arrangements, or protects your business, products and services:

  • Companies House information
  • HMRC papers
  • Data protection documents
  • Tenancy agreements
  • Details of financial agreements
  • Contracts for goods and services
  • Intellectual property

Tax: Retain any information which is provided for tax purposes:

  • Bank statements
  • Invoices
  • Record of expenses
  • Past tax returns

Health and safety: Ensure you regularly complete risk assessments and have procedures in place to log incidents:

  • Display a health and safety regulations poster
  • Keep accident and incident reports
  • Carry out risk assessments (in writing if you have five or more employees)
  • Create a health and safety policy (in writing if you have more than five employees)

What are the risks of poor business compliance?

Poor business compliance is simply not worth the risk. You should adopt appropriate internal controls to make sure you’re abiding by the regulations related to your company’s operations.

If your company is investigated and found to be non-compliant, you could be punished with sanctions such as fines, profit skimming, or even imprisonment.

Some other consequences and costs may be incurred, such as claims for damages by customers and business partners.

What’s more, these sanctions are not limited to a single company but can affect the entire parent company.

In these cases, business insurance does not offer any protection. There’s also the loss of reputation and trust among business partners and customers to consider, which may be impossible to come back from.

How can I keep my business compliant?

The regulations are ever-changing, with new rules and updates coming into place all the time – and there’s no doubt that it’s a huge challenge for small businesses to keep up, but it’s important that you do.

One example is a recent change in a piece of tax-avoidance legislation.

From April 2021, private sector employers have to follow the same rules as the public sector concerning IR35 – also known as the ‘off-payroll working rules’.

This means that private-sector employers now face a tricky choice: continue to treat contractors as contractors and risk a hefty fine if HMRC takes a different view or treat them as employees with the additional costs and responsibilities this involves.

However, by taking the appropriate steps, both contractors and businesses can ensure that they do not fall foul of IR35.

To minimise your chances of being non-compliant, adopt internal controls such as appropriate organisational policies and procedures, regular risk assessments, internal audits and independent statuary audits and process updates, keeping all the associated documentation as proof of your compliance.

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Small business compliance UK – what you need to know | (2024)


What is the small business legislation in the UK? ›

The Small Business, Enterprise and Employment Bill is designed to reduce the barriers that can hamper the ability of small businesses to innovate, grow and compete. It paves the way for Government to be more supportive of small business in the UK.

What is compliance in business UK? ›

Compliance means ensuring business activities are in line with relevant regulations and legislation. Many regulations cover business activities by firms across the UK, but some are specific to England and Wales, Scotland, and Northern Ireland.

What are three different laws or regulations that a business operating in the UK must comply with? ›

This includes regulations involved in registering a company, managing employees, privacy regulations, trade marks, and consumer law.

How do you ensure business compliance? ›

The six steps of business license compliance
  1. Step 1: Have an inventory of current licenses. ...
  2. Step 2: Map out the process for business license management. ...
  3. Step 3: Identify triggers for new compliance actions. ...
  4. Step 4: Assess your compliance risk. ...
  5. Step 5: Ensure due diligence moving forward. ...
  6. Step 6: Develop your compliance plan.
Jan 25, 2024

What determines a small business UK? ›

However, there are also sections of the Government that work with the EU definitions of micro, small and medium-sized businesses, which are broken down like this: A micro business has less than 10 employees and a turnover of less than £2m. A small business has less than 50 employees and a turnover of less than £10m.

What main legislation affects businesses in the UK? ›

The Health and Safety at Work etc Act 1974 (HSW) is the primary occupational health and safety legislation in the UK and places a duty on all employers to ensure, where possible, the health, safety and welfare of their employees at work.

What are compliance regulations UK? ›

No matter the size or the industry, every organisation must follow certain laws and regulations. Regulatory compliance describes the actions an organisation takes to comply with those rules and policies as part of its operations. When it comes to data, there are rules for handling sensitive information.

What is a statement of compliance UK? ›

The company must make an explicit and unreserved statement in the notes to the financial statements of compliance with FRS 102 and this statement cannot be made unless the financial statements comply with all requirements of the standard.

What is compliance interview UK? ›

A DWP compliance interview is a meeting arranged by the Department for Work and Pensions (DWP) to ensure you are receiving the correct benefits and providing accurate information. These interviews can occur for various reasons, such as routine checks or due to a report of a change in your circ*mstances.

What are the mandatory policies for companies in the UK? ›

There are only three that British law requires.
  • Health & safety policy (if you have more than five employees).
  • Disciplinary and dismissal policies.
  • Grievance policy.

What are the common compliance regulations? ›

Some of the major regulatory compliance examples related to financial and non-financial sectors include the Sarbanes-Oxley Act, Health Insurance Portability and Accountability Act (HIPAA), Payment Card Industry Data Security Standard (PCI DSS), Federal Information Security Management Act (FISMA), and the European ...

What are the 2 main types of regulations? ›

Failure to meet regulations can result in fines, orders to cease doing certain things, or, in some cases, even criminal penalties. Economists distinguish between two types of regulation: economic and social.

What are the 5 key areas of compliance? ›

This global template organizes key enforcement and regulatory issues into five essential compliance program elements: leadership, risk assessment, standards and controls, training and communication, and oversight.

What is the difference between an audit and compliance? ›

So to summarise, compliance is an operational function of the firm. It is there to manage compliance risk and protect the business, but in a pragmatic and risk-based way. Audit is a much more focused business assurance function.

How to demonstrate compliance? ›

  1. 8 Tips to Ensure Compliance in the Workplace. ...
  2. Apply your policies and procedures consistently. ...
  3. Remove compliance barriers. ...
  4. Use training as reinforcement. ...
  5. Stay up to date on laws and regulations. ...
  6. Make sure the whole team is following procedures. ...
  7. Conduct compliance audits regularly.

How does the UK Government support small businesses? ›

Lending and direct finance

The Recovery Loan Scheme is a Government-backed loan scheme designed to support access to finance for UK businesses. The ENABLE Programmes support financial institutions to lend to smaller businesses by using Government-backed guarantees.

What is the law of the Small Business Act? ›

It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property ...

What is the small business company Act? ›

In 1953 Congress passed the Small Business Act, which created the Small Business Administration (SBA) that is charged with overseeing the small business program.

What is the current companies Act in the UK? ›

Company law in the UK is set out principally in the Companies Act 2006 (the 2006 Act). Part 15 (sections 380 to 474) sets out requirements for the preparation, distribution and filing of accounts and reports including the choice of accounting framework.


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