Accountants and business advisers 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 NI contributions from April 2022. Unlike existing NI contributions, this is to be a hypothecated levy. There will be an equivalent charge on company dividends and individuals over retirement age will also pay the 1.25%.
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.”