The Chancellor’s Spring Statement has been met with much criticism since it was delivered on 23 March, not least from employers.
Those who were hoping for a delay to the national insurance contributions (NIC) increases will have been disappointed, as the rise of 1.25% from 6 April is going ahead. While the announced increase in the primary threshold for NIC to £12,570, which is the point at which employees start paying NI, from July 2022 will have provided some solace for employees, particularly for low earners, it will not help employers.
On top of the NIC rise, employers face the increase in corporate tax announced last year. Corporate tax rates are set to rise from 6 April 2023 for any businesses with taxable profits over £50,000. Rates will increase from 19% up to 25% for those with profits in excess of £250,000.
These rising tax costs will be exacerbated by rising salary costs. With labour shortages and many employees hit with rising prices, employers will come under significant pressure to increase wages. Many employers are already finding that they need to pay over the odds to attract and retain key employees. Given what is on the immediate horizon, a wage-inflation spiral is a very real possibility, further increasing employer costs.
Among the gloom, there was some brighter news in the Spring Statement for employers. The employment allowance, which employers that have total national insurance liabilities of less than £100,000 in the previous tax year can offset against their NIC bill, will increase to £5,000 from 6 April. Also, some employers may benefit from the temporary 5% cut in fuel duty from 23 March and the exemption from business rates from April for businesses making green technology.
There are often actions employers can take themselves to reduce employment tax costs. One of the longstanding NIC saving ideas for employers is a salary sacrifice arrangement whereby the employees gives up some of their salary in return for increased employer contributions to a pension scheme, since unlike paying salary, employer pension contributions are not subject to NIC. Salary sacrifice can also be used effectively for other benefits, including the provision of workplace nurseries and bikes-for-work schemes.
There is also an exemption from NIC for employers who hire qualifying military veterans, which may help some employers. The use of electric vehicles is also on the increase, given their lower NIC cost. Taken together, such measure can help employers reduce their overall NIC liability to help counter the forthcoming 1.25% rise.
With the sharp rise in the cost of living and increases in taxes, anything that can help reduce employment tax costs is likely to come into sharper focus over the coming years.
Lee McIntyre-Hamilton is a tax partner at Keystone Law