Compliance costs are expenses associated with regulatory compliance that do not contribute to a business’s immediate activities. Companies can request exceptions to regulations if compliance costs are unreasonable, but may have to comply if they make changes that provide an opportunity to do so. Compliance costs include financial institutions’ expenses to ensure regulatory compliance, tax specialists’ services, and critics argue that they create barriers to market entry. Companies may qualify for exceptions, but not always, and can discuss their options with an attorney.
A compliance cost is a cost associated with regulatory compliance that does not contribute to the immediate activities of a business. A company can request an exception to the regulation if it can show that the cost of compliance would be unreasonable. In this situation, you will receive a special waiver, but you will have to comply if you remodel, change procedures, or engage in similar activities, when the transition would provide an opportunity to do so.
An example of a cost of compliance is the cost financial institutions incur to ensure that they file the appropriate documents with government regulators, record transactions properly, and train their staff to comply with regulations. This can be quite expensive and may require hiring new staff members or maintaining an entire compliance department. If the business does not comply, it may lose its license to operate and therefore must bear the cost even though it does not provide a direct source of profit or enhance business activities.
Many companies rely on the services of tax specialists, another form of compliance cost. Sales taxes, value-added taxes, and income taxes require careful record-keeping and documentation. This may be beyond the skills of the business owner, or it could be too much work for the business owner, so a professional should be hired. The cost of compliance is tax deductible, but still adds to the cost of doing business.
Critics may argue that regulatory compliance creates a barrier to market entry and may limit competition. If companies must spend a lot of time and money on compliance, new companies could have a hard time getting off the ground. Your staff may lack the necessary training or skills. Opponents of tough regulation can use this argument to suggest rolling back the regulations, adding exceptions, or building in a longer waiting period before they go into effect.
If compliance costs are a hardship, companies may qualify for exceptions, but not always. For an issue like filing taxes, businesses don’t get a waiver, but they could apply for an extension if they can show it’s necessary. Businesses with concerns about compliance costs can discuss the situation with an attorney to see what their options are. If it is possible to file an exception, the attorney can help you with this process. In a simple example, a business that operates in a historic home could request an exception to laws requiring accessibility because the home would be too expensive to remodel. However, if the business moves or remodels in the future, the exception will no longer be valid and must comply with accessibility legislation.
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