Almost £5.5 bn in NIC cuts boost to new businesses

Friday 10 January 2014

Many budding entrepreneurs could be incentivised to set up a new business following the news that the government's cuts to National Insurance Contributions (NIC) will save nearly £5.5 billion per year for employers by the end of the parliament.

In news that is likely to encourage a greater culture of hiring, HM Revenue and Customs revealed nearly £200 per employee could be slashed by NIC changes.

This is thanks in part to the introduction of the new Employment Allowance, which is set to take effect in April.

Under the scheme, each business and charity in the UK will be entitled to a £2,000 Employment Allowance to reduce annual NIC bills.

Designed to reduce the barriers facing small businesses, companies confirm their eligibility for the Employment Allowance through their usual payroll processes. This is delivered via standard payroll software and HMRC's real-time information system.

When in effect, the initiative will benefit up to 1.25 million businesses and could take one third of all employers out of NIC contributions altogether.

Over 90 per cent of the benefit of the allowance will go to small companies with fewer than 50 employees and businesses will also be able to employ four adults or ten 18-20-year olds full-time on the national minimum wage without paying NIC.

The abolition of employer National Insurance for employees under the age of 21 from April 2015 will also help to generate significant savings for businesses, while the raising of the NIC threshold in 2011 has already helped to make headway.

Prime minister David Cameron said: "It’s businesses that get wages in people’s pockets, food on their tables, hope for their families and success for our country. Small business and entrepreneurs are the lifeblood of our economy and this government is firmly on their side.

"An ambitious and thriving small business sector is vital for steering the economic recovery in the right direction and helping us to succeed in the global race."

As part of the countdown to the rollout of Employment Allowances, chancellor George Osborne visited two small businesses that will benefit from the scheme.

Chiff-Chaff Cafe opened in September 2013 in Bedford and employs two people. It will now see its employer NICs bill completely wiped out.

Elsewhere, Ridgeway Garage in Enfield, which employs nine people including an apprentice, will receive the full £2,000 allowance and its NIC bill will be lowered by 25 per cent.

"Small businesses make a vital contribution to our economy, creating jobs and stimulating growth," Mr Osborne said.

"The ones I have visited today want to expand, take on new staff and make new investments so the actions we have taken to cut the jobs tax will be a real boost to them."

He added that by providing cash back on jobs, Employment Allowances help businesses achieve their goals and thrive.

Indeed, the changes also help to encourage a culture of hiring, which creates jobs and supports the UK's economic recovery.

For larger businesses, lowering NIC costs will also serve to free up resources that can be used to attract the professional talent needed to navigate through the current skills gap.

By Victoria McDonnell

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