Accountants are warning that the increase in National Insurance contributions for businesses could discourage the creation of new jobs and potentially put some at risk, while the individual tax burden is at its highest for decades.
Under measures announced yesterday by the prime minister Boris Johnson, a new social care levy will see the introduction of a 1.25% hike in National Insurance rates for employees and employers, effective from April 2022, set to raise £12bn a year, of which £600m will be generated by an increase in the dividend tax rate.
Paul Dickson, CEO and managing partner at Armstrong Watson, said: ‘This increase in national insurance will have a big impact on business. It is effectively a tax on businesses for employing people. It will create a significant additional burden at a time when they will be dealing with the aftermath of the pandemic.
‘Not only are businesses trying to navigate out of the economic fallout of the pandemic, but they are also facing greater costs, and now they are being hit with a tax because they employ people. There is no correlation to profits. If a business was making more profit, then I think increasing tax by 1.5% would be more bearable, but it isn’t, this announcement taxes businesses based on their salary bill.
‘This increase in NIC will discourage the creation of new jobs and will potentially put some positions at risk. The government should be looking at how they can support businesses to create jobs, thereby creating more wealth to be taxed.’
The increase sees the NICs’ bill for companies increasing significantly with employer NICs’ rate now hitting 15.05% in employment related taxes.
John Cullinane, director of public policy for the Chartered Institute of Taxation (CIOT), explained: ‘National insurance contributions (NICs) are a tax on income but they are not the same as income tax. This has implications for how different groups are affected.
‘For example, NICs affect employed people differently from self-employed people. At 9% the main rate of NICs for self-employed people is 3% lower than that for employed people. In effect adding 1.25% to each figure, will not change that gap.
‘But that 3% differential is dwarfed by the 13.8% cost of employers’ NICs, levied on wages paid to employees but not on payments made to independent contractors. This will rise to, in effect, 15.05%, amounting to an increase in the total tax burden on employment of 2.5% of income compared to just 1.25% for self-employment.’
When the pandemic started, the Chancellor indicated that his long-term aim was to align the tax liability and national insurance rates between employed and the self-employed, which may be addressed in the Autumn Budget in October.
John Sheehan, partner at UHY Hacker Young, said: ‘We expect the rise in National Insurance will increase differences between employment and gig economy taxation. As a result, employers may be encouraged to make more use of self-employed workers, while shifting away from employees.
‘The government has made the point in the past that it would work on closing the gap between taxation of the employed and self-employed, however, its latest tax increase will have done the opposite.’
Paul Johnson, director of the Institute for Fiscal Studies (IFS), said: ‘A levy of 1.25% on employee earnings and on employer wage costs (so a 2.5% overall increase in the tax rate on earnings), will raise £12bn a year. The extension of this levy to those over state pension age and to dividends is welcome, but this remains a tax which will be overwhelmingly borne by workers with very little coming from pensioners. This continues a trend seen over many decades of the burden of tax being shifted towards earnings. The creation of an entirely new tax will mean yet more quite unnecessary complexity.’
Amanda Tickel, head of tax policy at Deloitte UK, said: ‘The planned increases of 1.25% in national insurance rates and dividend taxation from 2022, are expected to raise £12bn a year - more than the total tax raised by all capital gains taxes. This will have the desired impact in paying for social care.
‘It will, however, also increase the cost of employment further and when added to the tax rises announced in the March Budget, result in the highest ever sustained tax level in the UK.
‘HMRC now need to work out how to collect the levy from those above pension age who are not currently paying NI through the PAYE system, as well as looking at how ring fencing this tax to a particular cause will work in practice. This could be a complex and costly exercise and explains why some of the measures are deferred until 2023.’
The latest announcement sees the tax burden reach its highest level for decades. Isabel Stockton, a research economist at the IFS, said: ‘Following just six months after the March Budget, itself the biggest tax-raising Budget since Norman Lamont’s 1993 Spring Budget, these announcements push taxes to their highest-ever sustained share of the economy. Equivalently, government spending is set to reach a record peacetime level. Long-term challenges around rising costs of health and social care means this increase in the size of the state is likely here to stay.’
This also represents a further complication of the tax system. Cullinane said: ‘The new health and social care levy, by being established separately from National Insurance, and with slightly different rules, represents a further complication of the tax system.
‘The initial year in which national insurance will be raised will enable HMRC to build the systems to collect the levy. It Is hard to avoid seeing this as a diversion of scarce IT and other resources at a time when HMRC’s services to taxpayers and their agents are under severe strain. Presumably the government preferred to pay this price for the appearance of creating a new tax rather than of increasing rates of an existing one.’
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HMRC has launched nearly 13,000 investigations into alleged abuse of the government’s coronavirus (COVID-19) financial support schemes.
A freedom of information request revealed that, up to the end of March 2021, HMRC opened 12,828 investigations into alleged cases of fraud.
Commenting on the matter, a spokesperson for HMRC said: ‘It is vital we support businesses to recover by ensuring a level playing field, so the majority are not undercut by the few who tried to cheat the system. We are taking tough action to tackle fraudulent behaviour. We have now opened more than 12,000 inquiries into claimants we suspect may have kept more than they were entitled to. We have also begun a handful of criminal investigations.’
We will continue to open cases as the Income Support Scheme winds down and after the Scheme has ended.
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With less than a year to go until the plastic packaging tax is introduced a survey by Veolia found that 83% of businesses asked were not aware of the tax
The survey released after a Treasury technical consultation on the tax closed, found that most of the businesses asked, 84%, were in support of the tax.
The study, run in partnership with YouGov, surveyed 507 businesses and found that the two biggest drivers for acting more sustainably in business are government mandate, 30%, and environmental conscience, 48%.
First announced alongside the government’s Resources and Waste Strategy in 2018 the plastic packaging tax will come into force on 1 April 2022 and between 2022 to 2026 the tax is expected to raise £670m for the Treasury.
The tax will place a £200 per tonne levy on producers or importers of plastic packaging if they do not include 30% recycled content. Plastic covered by the tax includes bioplastics, including biodegradable, compostable, and oxo-degradable plastics.
The tax will not be chargeable on plastic packaging which has 30% or more recycled plastic content, or where the packaging is made of multiple materials of which plastic is not proportionately the heaviest when measured by weight.
This includes importers of packaging which already contain goods, such as plastic bottles filled with drinks, and where the imported packaging already contains other goods as the tax only applies to the plastic packaging itself.
According to an Imperial College London report, if all plastics were recycled then the UK could avoid contributing 61% of emissions and save 30 to 150m tonnes of carbon annually.
Tim Duret, director of sustainable technology, Veolia UK and Ireland said: ‘The plastics packaging tax is removing the economic burden of acting more sustainably and levelling the playing field for businesses.
‘In order to continue this momentum, we need to escalate the tax and roll it out across all types of plastics like construction, cars, furniture, and electric goods.
‘It is essential that we continue pairing our actions with the backing of policy. 84% of businesses we spoke to agreed and support the incremental increase to the plastic packaging tax.’
Certain exemptions will apply to the tax and these include plastics used in licensed human medicine, transport packaging to import goods into the UK, and plastics used in aircraft, ship or railway stores for international journeys as these are not released into the UK.
There will also be an exemption for businesses that manufacture and/or import less than 10 metric tons of plastic packaging in a 12-month period.
The tax is expected to have a ‘significant effect’ on businesses with the government estimating that around 20,000 manufacturers and importers of plastic packaging will be affected.
Helen Bird, strategic technical manager for plastics at WRAP, said: ‘The end market for recycled plastic is central to circularity and it’s positive to see that ahead of implementation, the plastics tax has positively impacted on demand. However, challenges remain. For some packaging it is practical to reach higher levels of recycled content, while for others, the roll-out of technological developments will be required to include any.
‘While we continue to export more than half of the UK’s plastic packaging waste, many businesses are struggling to secure enough recycled material to meet targets such as the UK Plastics Pact and tax obligations. We must continue to work together to drive investment to overcome these challenges and act more sustainably.’
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HMRC is reminding parents and carers they have until 31 August 2021 to confirm whether their teenagers are staying in full-time education or training beyond 16.
Last week, teenagers across the UK received their GSCE or Scottish National Certificate results and many are now considering their future. If they decide to continue their full-time education or training, parents or carers will be eligible to continue receiving child benefit payments for their child.
Child benefit is paid at £21.15 a week for the first child and £14 for each additional child.
HMRC has sent reminder letters to families receiving child benefit for their child in the last year of school or home education. If their child is staying in education beyond age 16, parents or carers must notify HMRC by the end of August, or their child benefit will be stopped.
It is quick and easy to update child benefit records via gov.uk. Alternatively, parents or carers can return the 297b form sent to them by HMRC.
Child benefit is paid to eligible parents or carers who are responsible for a child under 16, or under 20 if they are in full-time non-advanced education or approved training.
Parents or carers receiving child benefit and who also have an income over £50,000 (or their partner does), may have to pay the high-income child benefit charge via an annual self-assessment tax return.
From 30 November 2021, HMRC will stop making payments of child benefit, guardians’ allowance and tax credits, into Post Office card accounts. HMRC is reminding any child benefit and tax credits customers who use this account to receive their payments, that they will need to notify HMRC of their new bank, building society or credit union account details. The HMRC helpline is available on 0345 300 3900 or bank account information can be updated via taxpayers’ personal tax account.
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The Government could increase National Insurance contributions (NICs) by 1% for both employers and employees, a report has claimed.
The Times said senior ministers have agreed to increase NICs to put an extra £10 billion into social care, to fund long-term reform and reduce NHS waiting times.
Most employers currently pay NICs at a rate of 13.8%, while most employees pay NICs at 12% on their earnings.
The move would go against a Conservative party manifesto pledge not to raise NIC rates.
Dismayed at the possible tax hike while many firms are still reeling from the COVID-19 pandemic, Mike Cherry, chairman of the Federation of Small Businesses, said:
"A lot of business owners have had the worst 16 months of their professional lives.
"Many firms are now struggling with staff being pinged, emergency loans and late payments.
"NICs essentially serve as a jobs tax, making it harder for them to create opportunities.
"To hike them as the furlough scheme and wider support measures end would stop our economic recovery in its tracks before it's even started."
Any move could potentially take effect from April 2022.
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More start-ups were created in the first six months of 2021, compared to the number of businesses that closed over the same period.
Between Apriland June 2021, 105,455 businesses closed, compared to the 73,580 that closed during the same period in 2020.
The ONS said the unusually low amount of business closures in Q2 2020 was a result of the unprecedented amount of support given to businesses at the start of the pandemic.
The number of businesses that closed in Q2 2021 was still higher than pre-pandemic levels, as businesses struggled to trade amid lockdown restrictions.
On the other hand, 136,765 start-ups were created in Q1 2021 (up 16% year-on-year), followed by 96,895 in Q2 2021 (up 25% on Q2 2020).
The number of start-ups in Q1 2021 outstripped the number of closed businesses by 25,260, although a further 8,560 firms went out of business in Q2 2021.
This figure could be poised to increase further as Government support, such as the furlough scheme, ends on 30 September 2021.
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The Government has named 191 employers who have underpaid workers £2.1 million between 2011 and 2018, a list that includes "major household names".
Named employers have since been fined an additional £3.2m for failing to pay over 34,000 employees at least the minimum wage.
Business minister Paul Scully said:
"Employers that short-change workers won't get off lightly".
The Government said not all underpayments were intentional, but highlighted it is the responsibility of all employers to abide by the law.
Employers underpaid workers in the following ways:
Bryan Sanderson, chair of the Low Pay Commission, said:
"These are very difficult times for all workers, particularly those on low pay who are often undertaking critical tasks in a variety of key sectors including care."
"The minimum wage provides a crucial level of support and compliance is essential for the benefit of both the recipients and our society as a whole."
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HomeSelf-assessment registration reminderSelf-assessment registration reminderIndividuals who registered as self-employed during the 2016/17 tax year have until 5 October 2017 to register with HMRC for self-assessment. Research by resource platform Informi found 1 in 4 small business owners have previously failed to submit their tax returns on time, with 7% missing the 31 January deadline on multiple occasions.Registration for self-assessment is done via the HMRC website.Once completed, you will receive a 10-digit unique taxpayer reference to complete your self-assessment tax return. Failure to meet the registration deadline can lead to penalties imposed by HMRC. This can amount to up to 30% of the tax bill which is owed, unless this is paid in full by the online tax return deadline of 31 January 2018.However, the average fine for those missing the deadline in the Informi study was £284.56.13% of the late returners polled faced a penalty charge which exceeded £500, with another 2% fined more than £800. All your income received during the tax year running from 6 April to 5 April must be accounted for in a paper tax return – this needs to be posted to HMRC no later than 31 October 2017.We can help you with self-assessment.
Businesses that failed to pay staff the national minimum wage have been forced to pay back more than £2 million in unpaid salary.
In addition to paying workers back money they owed, 233 employers on the government's 'named and shamed' list were fined £1.9 million.
The national living wage is currently £7.50 an hour for employees over the age of 25, and £7.05 an hour for those aged between 21 and 24.
The Department for Business, Energy and Industrial Strategy said retail, hairdressing and hospitality businesses were among the worst offenders.
Common errors made by businesses include:
"It is against the law to pay workers less than legal minimum wage rates, short-changing ordinary working people and undercutting honest employers.
"Today's naming round identifies a record £2 million of back pay for workers and sends the clear message to employers that the government will come down hard on those who break the law."
Melissa Tatton, director at HMRC, added:
"HMRC is committed to getting money back into the pockets of underpaid workers, and continues to crack down on employers who ignore the law.
"Those not paying workers the National Minimum or Living Wage can expect to face the consequences."
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Originally announced in the 2016 Budget, the 2016 Autumn Statement confirmed that Class 2 National Insurance Contributions (NICs) will be abolished from April 2018, hopefully achieving the desired effect of simplifying National Insurance for the self-employed and making the system fairer for employed and self-employed individuals.
At the same time as the abolition of Class 2 NICs, the system for Class 4 NICs will be reformed to include a new threshold – to be called the ‘small profits limit’ (SPL). The amount of the SPL for 2018/19 is yet to be confirmed but is likely to be around £6,025.
Payment of Class 2 NICs by the self-employed – a standard weekly contribution of £2.80 per week in 2016/17, rising to £2.85 per week from April 2017 – gives eligible individuals access to certain contributory benefits such as contribution-based employment and support allowance, basic state pension and bereavement benefits.
Class 4 NICs are paid by the self-employed on profits above the annual ‘lower profits limit’ (LPL). For 2016/17, contributions are payable at the rate of 9% on profits between the LPL of £8,060 and the ‘upper profits limit’ (UPL) of £43,000. Contributions are then paid at the rate of 2% on profits above the UPL. For 2017/18 the LPL will be £8,164 and the UPL will be £45,000.
After abolition of Class 2 NICs from April 2018, those with profits between the SPL and the LPL will not be liable to pay Class 4 contributions but will be treated as if they have paid Class 4 contributions for the purposes of gaining access to certain contributory benefits. Those with profits at or above the Class 4 LPL will gain access to the new state pension, contributory employment and support allowance (ESA) and bereavement benefit. Those with profits above the LPL will continue to pay Class 4 contributions.
The special arrangements that currently apply to share fishermen and volunteer development workers that allow them to pay special rates of Class 2 NICs to gain access to a wider range of benefits than currently available through Class 2, will also be abolished from April 2018. Transitional provisions will apply.
Class 3 contributions, which can be paid voluntarily to protect entitlement to the state pension and bereavement benefit, will be expanded from April 2018 to give access to the standard rate of Maternity Allowance (MA) and contributory ESA for the self-employed. Rates of Class 3 NICs are £14.10 per week for 2016/17 rising to £14.25 in 2017/18.
Concerns over these changes have been expressed within the tax profession. Anthony Thomas, Chairman of the Low Incomes Tax Reform Group (LITRG) said that some parts of these proposals are good news for self-employed workers on low earnings, but by no means all. Those with profits between the Class 2 exemption limit (currently £5,965) and the Class 4 LPL (currently £8,060) will be better off because they will pay no NI but be credited with contributions. The Group’s concern is for those with earnings lower than £5,965 who would have to pay voluntary Class 3 contributions in the future to protect their benefits entitlement if they did not obtain NI credits through receipt of other benefits, for example tax credits, child benefit or Universal Credit. Class 3 contributions will cost almost five times the amount they are paying now (£14.10 per week compared to £2.85 per week) and may mean the cost is unaffordable, leading them to rely more on means-tested benefits in the future.