Nearly half a million UK businesses should receive a tax cut worth up to £1,000 from today.
The Employment Allowance has risen from £4,000 to £5,000 – meaning smaller firms will be able to claim up to £5,000 off their employer National Insurance Contributions (NICs) bills.
Announced by the Chancellor at last month’s Spring Statement to reduce employment costs, the change takes an extra 50,000 firms out of paying NICs and the Health and Social Care Levy. This increases the total number of businesses not paying NICs and the Levy to 670,000.
A statement from The Treasury explained that 94% of those benefitting are small and micro businesses, and the sectors that will see the highest numbers of employers benefitting are the wholesale and retail sector (87,000); the professional, scientific and technical activities industry (63,000); and the construction sector (52,000).
However, for most people, national insurance contributions will increase by 1.25% today, to help pay for the Health and Social Care Levy.
The UK Government predicts that the tax rise will raise £39bn over the next three years to help reduce the Covid-induced NHS backlog and later reform adult social care for the long-term.
Prime Minister Boris Johnson said: “The levy is the necessary, fair and responsible next step, providing our health and care system with the long term funding it needs as we recover from the pandemic.”
The Conservative Party 2019 election manifesto, which helped Johnson deliver a landslide majority, pledged “not to raise the rates of income tax, national insurance or VAT”.
Health Secretary Sajid Javid said the pandemic had placed “unprecedented pressure on the NHS” and pushed up waiting times, adding that “this investment will go into tackling those backlogs and will help make sure everyone can get the care and treatment they need”.
Westminster has argued that the levy is progressive, with the highest 15% of earners paying more than half the revenues.
But Liberal Democrat leader Sir Ed Davey responded: “It doesn’t tax the unearned income of very wealthy people, it doesn’t tax the income of landlords, it puts all the burden on working people – that is wrong.
He said that income tax could go up a penny in the pound because that “spreads the burden and makes sure that wealthy people do pay their fair share”.
The latest figures from the Office for Budget Responsibility predict that the country is facing a £10.9bn tax hit this year from the changes, with around 40% of this being paid by workers and the rest by businesses.
Analysis of official figures by the Liberal Democrats shows this means families in Scotland are set to pay out an estimated £329m more in NICs.
The national insurance rise comes on top of a 54% increase to Ofgem’s price cap and increases to council tax and water bills, mortgages, rents, food and transport costs.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Awful April is just the beginning of an incredibly tough few months – the real pain of the national insurance hike will be felt on payday, at the end of the month.
“At that point, we’ll be reeling from the impact of higher energy bills, council tax, water bills, fuel costs – and we’ll have to manage it all on a smaller pay packet. It’s a terrible time to hike taxes.”
Employees currently pay national insurance on annual earnings above £9,880, but from July the threshold will increase to £12,570.
“In the intervening months, the threshold will be just £9,880, and the 1.25% rise will leave someone earning £20,000 paying £130 more a year, someone on £30,000 will pay £255 more, and someone earning £50,000 will pay £505 more a year,” Coles explained.
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