The upcoming National Insurance increase this year is set to hit small and medium-sized enterprises and their owners. Analysis from the Federation of Small Business (FSB), has shown the extent of the issue.
Its research claims these individuals will suffer a £260 rise in National Insurance contributions a month as a result of the tax increase.
This amounts to £3,115 per year for SMEs across the country.
Overall, they estimate that the NI increase will cost British SMEs around £5.7billion.
From April 6, 2022 to April 5, 2023 National Insurance contributions will increase by 1.25 percent in the UK.
This will be to fund the National Health Service (NHS) and social care following increased pressure from the coronavirus pandemic.
The Federation of Small Business has warned that the increase will push up firms’ tax bills to their highest level since the aftermath of the Second World War.
This, essentially, forces many businesses to hike up prices for shoppers amidst an existing cost of living crisis.
Economists have also warned that the £11billion National Insurance hike will create unemployment and stifle future job creation.
It’s estimated that the new rates will cost employers around £6.5billion.
Capital Economics have stated that there could be 130,000 fewer people employed in a year or two if the rise in National Insurance contributions reduces Gross Domestic Product (GDP) and the increased spending on the NHS and social care does nothing to offset it, they claim.
The Centre for Economics and Business Research has estimated that if a quarter of small business do not hire one extra employee because of increased National Insurance, it would cost 350,000 jobs.
The FSB’s previous research suggests the National Insurance increase will force 80,000 companies to consider redundancies due to the changes.
It predicted that unemployment will rise by 50,000 as a result of higher taxes for employers.
Last autumn, the Government legislated for the rate on employer contributions paid by small businesses to increase to 15.05 percent, up from 13.8 percent.
Rates of dividend tax are also due to increase by 1.25 percentage points from April 2022.
National Insurance contributions (NICs) are a tax on earnings and self-employed profits.
It is paid by employees, employers and the self-employed. National Insurance contributions can help to build a person’s entitlement to state pension and other benefits.
With the new NI increase, an employee earning £20,000 a year will pay an extra £89 and someone on £50,000 will pay an additional £464.
The Government has said that the changes are expected to raise £12billion a year to help support the NHS.
A proportion of the funds will be put towards the UK’s social care system.
The Chancellor of the Exchequer, Rishi Sunak, alongside Prime Minister Boris Johnson, recently described the National Insurance hike as “necessary”, in order to fund the NHS and social care system.