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Business

Published on September 9th, 2021 | by The GC Team

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NIC increases “anti-jobs, anti-small businesses” says FSB

The Federation of Small Businesses (FSB), “the UK’s largest business group,” has said the increases in National Insurance contributions announced this week constitute “a severe blow to small businesses and sole traders.” The FSB also questions the accuracy of Government estimates of how many firms will gain relief via the Employment Allowance scheme, and warns that the increases could cause 50,000 more people to be left out of work.

The Government is raising National Insurance contributions by 1.25 percentage points from April 2022 for employers, sole traders and employees. From 2023 the increase will become a separate tax on earned income.

Income from share dividends will also see a 1.25 percentage point tax rate increase, though ISA allowances will remain in place.

The FSB has called on the Government to increase the Employment Allowance to help mitigate the negative impact created by the UK-wide tax hikes on small firms and business owners, and its own assessment – based on bringing together the Institute for Fiscal Studies estimates of NICs rates, an international assessment of comparable employment cost increases, and the Office for National Statistics latest labour market study, indicates that as many as 50,000 more people will be left out of work.

The impact on the jobs market “could be even greater with the end of the job retention scheme approaching, a moment that has no precedent in labour market history.”

The FSB says the annual Employer NICs for a small business with five employees on salaries of £31,000 will rise to £16,500. The total annual cost of the hike to the small business community is set to be £5.7bn. The development comes as the Government’s own figures show that just 640,000 small businesses will receive full protection from its planned Employer NICs hike thanks to the  Employment Allowance. The figure represents 10.5% of the small business community, according to latest Government statistics, not 40% as was stated on September 7 at the Government press briefing.

Outside of the NICs increase, directors belonging to those 640,000 businesses will be impacted by a planned 1.25% increase in dividend taxation. 

FSB National Chair Mike Cherry said: “These hikes will have business owners and sole traders feeling demoralised at the point when they’re trying to recover from the most difficult 18 months of their professional lives. For those thinking about starting up, they send completely the wrong message.

“Business owners who have done all they can to retain and support their staff during the pandemic are now being punished for that loyalty with an £11bn increase in NICs, which essentially serves as a jobs tax.

“This regressive levy hits employers and sole traders without meaningful regard for how their business is performing. And this increase will stifle recruitment, investment and efforts to upskill and improve productivity in the years ahead.

“At the same time those running companies, many of whom were left out of pandemic support measures, face a fresh assault on dividend revenue.  

“It’s extremely disappointing to see the Government undermining the good work it did last year in raising the Employment Allowance to provide some protection for small employers.

“Instead of breaking manifesto promises, we had hoped this administration – which has repeatedly pledged its support for small enterprises – would build on that progress against a backdrop of spiralling input prices, skills shortages, supply chain disruption, the reintroduction of business rates and emergency loan repayments.  

“This move marks an anti-jobs, anti-small business, anti-start up manifesto breach. The Government should now increase the Employment Allowance to mitigate the damaging impacts of these hikes on the small firms that make up 99% of our business community.”

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