Queens Speech: A third of employers may not have to pay National Insurance Contributions…

Sound too good to be true?

Following the Queen's speech last week, which if you are anything like us, and have News 24-7 in the office - you will have seen a lot of coverage on. There was a significant amount of focus on the changes to National Insurance payments for Empoyers. Since so many of our clients and followers are small businesses who often come to the decision to take on their first member of staff or increase their staffing and request guidance from us on this, we thought this was a valuable topic to cover. 

The National Insurance Contributions Bill

This bill is designed to reduce the cost to small businesses of employing people. If it passes, from April 2014 every business (and charity) will be entitled to a £2,000 employment allowance.

It also aims to stop the use of offshore companies that are sometimes used by employers to avoid paying their National Insurance contributions. 

The move was first announced by George Osborne in the Budget earlier this year, as part of his plans to build an “aspiration nation” that supports small business and entrepreneurs. 

Around 450,000 small businesses will not pay any National Insurance contributions. This tax is paid by both employers and staff, and they go towards paying for benefits such as the state pension.

The Government is hoping the “employment allowance” will encourage small businesses to take on extra workers, especially those that are starting up.

What the March 2013 Budget said about it

George Osborne, Chancellor of the Exchequer said:

“It’s a tax off jobs and it’s worth up to £2,000 to every business in the country,”

“For the person who’s set up their own business, and is thinking about taking on their first employee, a huge barrier will be removed. They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax.”

Mr Osborne described this development as “the largest tax cut in the Budget” in an attempt to increase employment and boost growth.

The changes will take effect in April 2014 and apply to charities and sports clubs as well as businesses.

Financial experts said small businesses were “key winners” of the March 2013 budget, as they will also benefit from the cut in corporation tax to 20 per cent- happy days! That means many of the people that Enterprise North East Trust and Business Gateway help are benefitting from these government reforms, which makes us very happy bunnies.

Andy Willox, the Federation of Small Businesses’ (FSB) Scottish policy convenor, said on the matter:

“The Chancellor’s National Insurance Contributions (NICs) allowance scheme should give Scottish small businesses a shot in the arm as they strive to create the extra jobs our economy needs.
“Combined with strong business support, the FSB is sure it’ll create jobs and grow businesses.”

As the Coalition government also attempt on a wider basis to crack down on tax avoidance, this move will also contain measures to stop people using "abusive tax schemes" to get around paying their full amount to HMRC.

It will extend the "general anti-abuse rule" to the employment tax and prevent the use of offshore payroll companies, which can be used to help companies avoid paying National Insurance

Marion Thomson of Embarc Accounting said on the announcement:

"Working with small businesses on a day to day basis, I see the burden of National Insurance contributions first hand. Many businesses start off with no employees or part-time employees and as business grows they find themselves paying National Insurance contributions for the first time. The annual cost saving of £2,000 will encourage business owners to employ staff and help growth."

Martin Watt at Bon Accord Accountancy adds:

'Employer national insurance can be a hindrance to most small employers to taking on employees. The new National Insurance Employment Allowance will therefore encourage small businesses to take the step to grow their businesses by taking on their first employee. This will hopefully provide a real spur towards real employment. It may also encourage employers to take on first employees who are over the state pension age, as such employees will also have no employee national insurance to pay either.'

Allison Walker of Mint Accounting said:

'This reduction of £2k per employer is certainly welcome, though it is a pity the generous employer’s national insurance holiday for all new businesses in Scotland will come to an end on 5th September 2013. The majority of contractors or one man band limited companies will benefit in Aberdeen as many have a single employee (the director) with a salary of less than £22,188.

They will therefore pay no employers National Insurance. Many offshore employers do not have to pay any Employers’ National Insurance as they are governed under other jurisdictions so the £2k benefit in itself is unlikely to influence this.

Finally, although very welcome, the amount of national insurance payable is not the only aspect influencing business owners (both large corporates and small businesses) when making a decision to take on employees. There are onerous burdens of sick pay, maternity pay and paternity pay to consider as well as disciplinary processes and procedures and many businesses still prefer to avoid these issues by taking on contractors.'

So there you have it, that's what the professionals have to say on the matter. 

If you are considering taking on your first member of staff or would like to grow your business further, one of our friendly advisors here at Enterprise and Business Gateway would be delighted to help. 

You can call us on 01224 289725 if you have any questions in the meantime!