Bridging the Gap on Compliance and Regulation: Why a Gap Analysis Is Important

13 June 2023

We all know that in today’s fast-paced environment, businesses face numerous challenges on their journey to growth and success - especially when it comes to ensuring compliance with the many financial regulations! However, a gap analysis can help in navigating these hurdles. So, what actually is a gap analysis and how can it help you grow your business?

Why Should I Perform a Gap Analysis on My Business’s Compliance With Regulations?

Conducting a gap analysis on compliance and regulation for your business is important for a number of reasons. Firstly, it ensures you’re mitigating any risks you may currently be running by not keeping up-to-date with the best practices within your industry. It will help you discover areas in your company where you are not in compliance with applicable legislation, laws, standards, or guidelines. This enables you to measure the amount of noncompliance and understand the precise areas that demand change, assisting you in mitigating risks such as legal penalties, reputational harm, financial loss, and operational disruptions.

By addressing the gaps you have identified, you can also streamline your processes, enhance operational efficiency, and improve the effectiveness of your compliance efforts. This can result in cost reductions, greater resource utilisation, and overall performance improvements. Alongside all of these benefits, the results from a gap analysis will help to improve your reputation and trust among stakeholders, resulting in increased consumer loyalty and satisfaction as well as trust among your suppliers.

A Guide to Performing a Gap Analysis

When completing a gap analysis focusing solely on compliance and regulation, it’s essential to be as thorough as possible…

Understand the relevant regulations that apply to your business 

Investigate and become familiar with the regulations and compliance standards that apply to your industry and specialised area of expertise. This will include local, regional, and national regulations, as well as industry standards and best practices. It’s highly important that you gain as much clarity on specific rules and standards that need to be met. 

Perform your compliance gap analysis

Now it’s time to conduct your gap analysis with your focus on compliance. Identify your current compliance practices and procedures and compare them with the required standards. This will enable you to identify the gaps, prioritise for impact, and develop and implement your action plan. 

Accountability and Consistency

Getting strong, documented processes in place will help you ensure that compliance doesn’t fall by the wayside in the future, but you’ll also need clarity around whose responsibility it is. Building a culture of compliance across the business will ensure issues like fraud or missed deadlines are taken seriously, and will allow you to build on a solid foundation rather than one that’s slipping away through fines and fighting fires. 


Some Common Compliance Issues to Consider

VAT Payments

First of all, you need to know if you are required to be registered for VAT. Once your turnover hits £85k you are legally required to register, and HMRC are very proactive in checking this. It’s a good idea to keep an eye on that figure and act before you need to (you don’t need to wait to reach the threshold before you register).

Next, you need to understand what scheme you are registered under. You can read more about why we think the flat rate scheme is beneficial for most scaling businesses here. You’ll need to be clear on what VAT you owe and when it needs to be paid. In 2023, HMRC changed the way they issue penalties, so for every late filing or payment you will be given points – when you reach a point threshold, fines will be issued.

You also need to be aware of their standards for claiming VAT back on your business expenses. Do you have a high standard and keep every single receipt, or have a different policy in place? Are you confident in the difference between zero-rated expenses and those which are VAT exempt? You need to be! Finally, it’s advisable to set up a direct debit for your VAT payments. As long as you have the funds available, that’s one deadline you can forget about. 

Companies House Filing

When you start a business, you are required to register with Companies House within your first 3 months of trading. Along with this registration, you’ll need to make filings annually with your confirmation statement and accounting records. You’ll also need to keep the directors and share information up to date, as well as information about people with significant control. It can be easy to forget about these updates when they happen. This is just one reason why having a clear process in place will protect you.

Money Laundering Supervision

Depending on the industry you’re in, you could be subject to money laundering supervision regulations. This includes high-value dealers, non-high-value dealers who carry out ‘occasional’ transactions of £15k or more, and property-based businesses (HMRC has a full list here).

In essence, this regulation requires you to do your own independent checks when establishing a business relationship with a new customer to ensure they are who they say they are. It is also required when you have reason to suspect fraud or terrorist funding. In practice, this involves checking to identify documents of anyone in the business of significant control. However, you may need to do an enhanced check if the transaction is of high risk, the customer is a politically exposed person, or they are not physically with you when completing the check. 


There are many regulations relating to payroll that every employer should be aware of. The basics of employment law must be adhered to, many of which will involve your finances. For example, the minimum wage is updated every year on April 5th, and it’s vital that you stay up to date with the figures for every group you employ, from apprentices to full-time employees over the age of 25.

You must also maintain your understanding of the employment taxes that you are responsible for. PAYE is when employers deduct tax and national insurance from an employee’s pay, and pay it on their behalf. You do not need to register for PAYE if none of your employees are paid £123 or more a week, get expenses and benefits, have another job or get a pension. You are required to pay an employer’s contribution to national insurance and offer a pension. However, there are also tax relief schemes in place for small employers in place.

Whatever size you are, if you are paying people then you must keep payroll records. The HMRC website has a comprehensive breakdown of all this information in more detail.

This isn’t an exhaustive list

There could well be many more finance regulations that are relevant if you work in specific industries, but we hope it gives you a good idea of where to start!

A gap analysis will help you avoid some hefty fines, protect the reputation of your company, and give you some peace of mind in the process. Conducting a thorough analysis can be a great place to start if you’re feeling overwhelmed and lost around your finances, and is a useful tool to complete any time you collaborate with a new accountant or finance expert. It will give you a solid understanding of your financial standing to grow from and ensure you are always up to date with the best practices for your industry.

Not sure where to start? Get in touch with us today, and let’s level up your business.