London, (Parliament Politics Magazine) – Last year, the government announced a sharp hike in National Insurance contributions and Dividend tax rates from April this year.
The new tax hikes are set to rise in April this year despite calls from MPs and business to scrap the levy. Rishi Sunak announced in the last Autumn budget to increase National Insurance contributions by 1.25 percentage points starting in the new financial year. Large business, SME’s, self-employed and employees across the UK will have to pay extra tax to help new to help fund a new Social Care and Health Levy bill in England, which comes into effect in 2023, will decrease the burden on the NHS and increase spending on social care, following the Covid-19 pandemic.
The decision to raise national insurance this year has been heavily criticised by both Tory and Labour MPs, as well as businesses up and down the country, British Chamber of Commerce calls this tax hike a “a drag anchor on jobs growth” as firms emerge from the pandemic and furlough winds down. The Prime Minister Boris Johnson insists the measure are “reasonable and the fair approach”, despite promising not to increase taxes and break one of the key manifesto commitments, however Mr Johnson adds that at a “global pandemic was in no-one’s manifesto”.
The increase means that employers would be expected to pay approximately £6.5 billion and employees £4.3 billion. As an example, a Basic taxpayers will pay the increase, so for example if an employee is earning £24,100 each year, they would be expected to pay an additional £180 per year. And according to the government, these two tax measures will also provide extra funding on services for Scotland, Wales, and the Northern Ireland.
How does this affect businesses?
The devastating impact of the Covid-19 pandemic outbreak has already cost small businesses £126.6bn. Over the past 18 months, 81 percent of businesses said that the government’s financial support packages have not been enough, shutting down many small businesses across the UK, as there simply couldn’t recover from the fallout of the pandemic.
In the short term, UK small to medium sized business will likely have an impact on the recruitment, especially those firms thinking about hiring staff or investing in growth. Initially this could be much more expensive to employ new staff, but with the challenging times firms had to face, they may have to review remuneration packages and look for ways to minimise the costs. Some of which could be pay decreases to employee salaries or cut back on the spending to some pension schemes – such as defined contribution pensions – to fund the change. This could inevitably lead to difficulties in recruiting new staff.
