In September 2021, the UK government announced an increase of 1.25% in the amount of National Insurance (NI), a tax on earnings paid by both employees and employers, as well as sole traders. Used to fund the NHS, benefits and state pension, the changes are estimated to raise £12bn a year, which will be used to alleviate pandemic-related strain on the NHS.
The initial 1.25% increase in NI will take effect in April 2022, and will go on to become a new Health and Social Care Levy in April 2023. National Insurance is expected to revert to its current rate following the transition.
Small and medium enterprises (SMEs) can prepare for the increase in National Insurance by planning ahead. The increase is particularly straining on SMEs who have been adversely impacted by the pandemic, as they are more likely to be strapped for cash and/or assets.
The tax hike is also likely to have an impact on hiring, as SMEs will be expected to pay more to recruit a potential hire. This will add to the existing investment costs associated with recruitment and talent retention. As such, with the introduction of the higher NI tax, some businesses may find it difficult to make ends meet.
To plan ahead, be proactive and take the time to work out the increase in costs to your business. For example, if your business hires employees, estimate the tax increase. Use these estimates to plan and budget ahead.
Additionally, take steps to communicate the change to your staff members, as the increase will directly affect their pay. Communication might help your staff prepare and tailor their budgets accordingly, avoiding surprises down the line.
Finally, it’s a good idea to discuss the new changes with your accountant. An accountant can help estimate the impact of the tax increase to your business, finding ways to optimise your cash flow and tax payments.
In addition to providing accounting advice, at Bennett Verby, our experienced accountants are equipped to deliver financial and strategic advice with a view to maximise profits and minimise tax. To take advantage of our expertise, please get in touch with us for a free, no-obligation consultation today.
What else should I be thinking about?
There’s no ‘one size fits all’ solution for limited company directors. The Government measures that have been released may be useful for you depending on the size and nature of your business.
Here’s a brief list of things you could explore, which we have covered separately:
- Cash flow and payments
- Mortgage holidays
- Deferring income tax and VAT payments
- The Coronavirus Business Interruption Loan Scheme
- HMRC Time to Pay Scheme
- Statutory Sick Pay Relief package for businesses
- Business rates holidays
- The Small Business Grant Scheme
As always, we’re here to help you in these uncertain times. If you need advice about any of the above, speak to us about the ways we can help.