National Insurance rises are "anti-small business" says FSB

By:

Date: 7 September 2021

Prime minister, Boris Johnson announces increase in NICs

Prime minister Boris Johnson has unveiled plans to increase National Insurance contributions in order to fund health and social care - but business groups say it could derail the UK's recovery from COVID.

From April 2022, National Insurance contributions for employees and employers will rise by 1.25%. In a further blow for directors of limited companies, the prime minister also revealed that tax on share dividends will go up by 1.25%.

The government's social care plan will come into effect in 2023. The new rules mean that:

  • From October 2023, no-one will have to pay more than £86,000 for care over their lifetime;
  • The state will fully cover the care costs of anyone with assets of less than £20,000;
  • Those with assets between £20,000 and £100,000 will receive some means-tested state support.

The Federation of Small Businesses (FSB) has described the tax hikes as "an anti-jobs, anti-small business, anti-start-up manifesto breach". It said the government should now increase the Employment Allowance to mitigate the damaging impacts of these hikes on small firms.

FSB national chair Mike Cherry said: "These hikes will have business owners and sole traders feeling demoralised at the point when they're trying to recover from the most difficult 18 months of their professional lives. For those thinking about starting up, they send completely the wrong message.

"Business owners who have done all they can to retain and support their staff during the pandemic are now being punished for that loyalty with an £11bn increase in NICs, which essentially serve as a jobs tax. This regressive levy hits employers and sole traders without meaningful regard for how their business is performing. And this increase will stifle recruitment, investment and efforts to upskill and improve productivity in the years ahead.

"At the same time those running companies, many of whom were left out of pandemic support measures, face a fresh assault on dividend revenue."

The British Chambers of Commerce (BCC) has warned that the tax rises could hamper the UK's economic recovery. Suren Thiru, BCC head of economics, said: "Businesses strongly oppose a rise in National insurance contributions as it will be a drag anchor on jobs growth at an absolutely crucial time … This rise will impact the wider economic recovery by landing significant costs on firms when they are already facing a raft of new cost pressures and dampen the entrepreneurial spirit needed to drive the recovery."

Responding to the increase in dividend tax, the Association of Independent Professionals and the Self-Employed (IPSE) said that the "government is making it almost impossible to work as a freelancer". IPSE has pointed out that freelancers working through limited companies have already been excluded from support during the pandemic and have also been hit by the changes to IR35 self-employed taxation.

"To limited company directors … this is salt in a year of wounds," said Andy Chamberlain, IPSE director of policy. "The increase in National Insurance for sole traders will also be deeply damaging to the wider self-employed sector … These changes will squeeze the battered self-employed community - limited companies and sole traders alike."

The latest research by the Institute of Directors (IoD) has found that 73% of business owners are already concerned about potential increases to salary-related business costs. Speaking on the BBC Today programme, the IoD's chief economist Kitty Ussher said: "It just seems such an extraordinary time given everything that British business has gone through in the pandemic, to be facing an extra cost of employing people."

She added: "Nobody likes taxes, but the government has already said it's going to raise corporation tax, which is a tax that companies pay out of profit so if you're doing well, it gets paid. The problem with National Insurance is that it's a kind of flat cost, so it's paid regardless of whether firms are having a good year or a bad year."

Small business news block