who will benefit, who will not and what this means for the country as a whole. Our focus has been on deciphering the Statement to assess the impact the changes will have on our Armed Forces and Military in Business® communities. It’s vital that our small business owners and their financial advisors are able to take an informed approach to planning for the months ahead. Here are some of the things that have resonated with me, one of our ambassadors and partners at FSB…..
Rishi Sunak’s Spring Statement arrived amidst rising inflation, with the cost of the ‘weekly shop’ growing more expensive, prices at the pump spiralling upwards, and ever-increasing energy bills.
Understandably, the country was looking to the Chancellor to ease some of the pressure on household budgets, but his plans have come under fire due in no small part to a renewed commitment to the scheduled rise in National Insurance Contributions (NICs).
Hannah Saunders, Founder and Director of Toddle, eloquently conveyed her perspective as the owner of a growing small business looking to expand its workforce in the face of rising costs across the board:
“We’re disappointed with the rise in NI, as we’re looking at an extra £180-£260 a year for each member of staff, this isn’t too bad now we’re a team of 7, but we’re growing this year so this will start to have a bigger impact. It’s also ‘just another thing’ on top of rising ingredients costs, rising energy costs… it’s no ‘one thing’, but cost of goods sold, and broader net costs are all rising, and then we really start to feel the effect.”
To raise funding for the NHS and adult social care, the planned changes will see an increase of NICs by 1.25 percentage points for workers, employers and the self-employed alike. As a result, from 6th April 2022, employees will pay more National Insurance on their salaries, employers will have to pay extra National Insurance contributions for their staff, and the self-employed will pay greater National Insurance on their profits. Crucially, Employer NICs are not capped in the same way as employed or self-employed, which means the cost will be borne even more by larger employers than SME employers or workers.
For many small-business employers, this change will most likely result in an increase in outgoings and changes to payroll systems to account for the rise in NI. But having lobbied to stop or postpone the NICs rise, FSB managed to achieve an increase in something called the ‘Employment Allowance’. This allowance means every eligible small employer at the moment has £4,000 taken off their NICs bill; from the 6th of April this will be increased by £1,000 to £5,000. Craig Beaumont, Chief of External Affairs at FSB, explains:
“Nearly 10 years ago we conceived the Employment Allowance, which has now been expanded three times under different Chancellors. Subtracting the first £5,000 off every small employer’s annual NICs bill from 6th April is a big deal – it will cost over £2.8bn each year. This is an important help as we face the NICs hike; the Allowance means 670,000 small employers won’t pay the NICS levy at all.”
Reducing Employer NICs is key to supporting pay and creating new jobs. This is why we at X-Forces Enterprise joined up with FSB to campaign to remove Employer NICs for the first twelve months of a veteran’s employment after they leave the service of their country. These individuals will be kept out of the NICs hike for a while, so another nice reason for small employers to take on a veteran!
In addition to the small employer NICs help, the changes in thresholds for employees and self-employed will address the NICs hike for many workers, as Sunak explained:
“The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022. This increase will benefit almost 30 million people, with a typical employee saving over £330 in the year from July 2022. Around 70% of NICs payers will pay less NICs, even after accounting for the introduction of the Health and Social Care Levy”
The threshold changes do create some other positive impacts, too. If you’re self-employed, you would pay Class II NICs when your earnings hit just over £6,000 and Class IV just over £9,000. These thresholds will now be moved up to join the income tax threshold at £12,570 – so there will be no tax or NICs up to that point. As a helpful bonus, you could also continue to build up to National Insurance credits as if you were paying – which really helps now that the self-employed can access the state pension.
The government’s policy has consistently been to make work pay. These NIC changes provide some welcome respite for those working from the runaway costs we are seeing in energy prices and the follow-on consequences in many other aspects of the economy.
Finally, I would like to wrap up with the hope that this breakdown helps to inform the debate with your accountant or financial advisor. Many thanks for the contributions of Hannah Saunders, Craig Beaumont, Rishi Sunak and our own resident accountant at X-Forces Enterprise – Keith May.