Taxation – Credit will hurt small companies

The government’s new working family tax credit paid through national insurance contributions could force smaller businesses to cut back on part-time employees, tax experts warned last week.

The replacement of the current government-paid system with the working family tax credit scheme will require employers to pay employee tax credits in addition to basic salary, over a 26-week period. The employer can then offset the credit against PAYE and NI liabilities. The scheme was outlined by the Treasury last month and will come into force in October 1999.

The reform, however, has been seized on by tax experts, as another compliance burden on an SME sector that the chancellor was so keen to woo in last week’s Green Budget.

Anne Redston, tax partner at Ernst & Young, said the new tax credit would cause particular disruption to the cashflow of small businesses, which would have to reclaim excess payments from the Revenue.

She added that the new scheme could act as a disincentive for small businesses looking to take on part-time staff.

Richard Shooter, senior partner at Henstock Shooter and chairman of the English ICA’s self-assessment monitoring group, said: ‘It’s like self-assessment, and it will be another burden on the taxpayer, with more paperwork for employers.’

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