The national insurance exemption for small businesses outside the South East
could give them the equivalent of an extra member of staff, say advisers.
New businesses set up outside the capital and the South East will receive a
national insurance holiday for the first 12 months of opening.
Some businesses will now be able to afford a “free” employee from the
changes, said Colin Keane, senior director at Alvarez & Marsal.
“In most cases you’re gaining a free employee under this initiative, which
could help firms looking to set up,” said Keane.
Any new business in these areas over the next three years, starting from this
month, will be national insurance exempt on the first £5,000 it would usually
pay in NICs per employee – with an exemption cap on ten employees per business.
This is due to help up to 400,000 companies in the first three years at a
cost of approximately £890m over that period to the exchequer.
Not all advisers were so impressed with the impact of the chancellor’s
national insurance overhaul. They flagged up that the exchequer still stands to
gain approximately £1bn each year from changes to national insurance as a whole,
largely coming from businesses with higher paid individuals, such as
professional service firms.
The rate of NICs will increase as planned by the previous government for
employers and employees, to 13.8% at the start of the next tax year. The new
government had promised to reverse this, which it has only partially achieved
through raising the NI thresholds for employers. The higher threshold for
employers to pay NICs moves to approximately £131 per week from £110 per week,
costing the exchequer approximately £3.1bn in its first year. But it could also
end up costing the employer in some circumstances.
For an employee on an annual wage of £30,000 the employer would previously
have paid approximately £3,108 in NICs. They would now pay approximately £3,200.
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