National Insurance hike could have a significant impact on businesses

Armstrong Watson has warned that an increase in National Insurance Contributions for businesses could discourage the creation of new jobs and potentially put some at risk.

While the intention is that Boris Johnson’s tax hike will help the NHS recover from Covid and fund a new social care plan, CEO and Managing Partner Paul Dickson has suggested it will also create a significant burden for businesses.

The Prime Minister announced that employers, employees and the self-employed will see a 1.25% increase to NICs from April 2022. Unlike existing NICs, this is to be a hypothecated levy. There will be an equivalent charge on company dividends and individuals over retirement age who are working will pay the 1.25% a year later. 

Policy documents state that the Levy will be effectively introduced from April 2022, when NICs for working-age employees, self-employed and employers will increase by 1.25% and be added to the existing NHS allocation. From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated out and will also apply to individuals working above State Pension age, and NICs rates will return to their 2021- 22 levels.

The Levy, which will fund £12 billion a year for the NHS and social care, also apply to individuals above State Pension age with employment income or profits from self-employment above £9,568.

Paul Dickson, CEO and Managing Partner, said: “This increase in NI will have a big impact on business. It is effectively a tax on businesses for employing people. It will create a significant additional burden at a time when they will be dealing with the aftermath of the pandemic. 

“Not only are businesses trying to navigate out of the economic fallout of the pandemic, they are also facing greater costs, and now they are being hit with a tax because they employ people. There is no correlation to profits. If a business was making more profit, then I think increasing tax by 1.5% would be more bearable, but it isn’t, this announcement taxes businesses based on their salary bill. 

“This increase in NIC will discourage the creation of new jobs and will potentially put some positions at risk. The government should be looking at how they can support businesses to create jobs, thereby creating more wealth to be taxed.” 

Jim Meakin, Tax Partner, added: “There is some hope for smaller businesses however, as those who benefit from employment allowance - around 40% of businesses according to Government stats - may not be affected, but it comes at a time when not only are many businesses struggling to recover from the disruption caused by the pandemic, they are also seeing employment costs rise because of a scarcity of labour. 

“This cost will either eat into the budget employers have from which to fund pay rises or employ additional people, or it will create additional employment cost which will be passed on to consumers and add to inflationary pressures. 

“The cap on social care costs which comes as a quid pro quo to the levy is to be welcomed but this will generally be of greatest benefit in parts of the country where property values and the consequent wealth are higher.” 

More information on the social care plan and how it will be funded.