Given the sizable budget deficit and the demands of the NHS and social care, it will be no surprise to many that taxes are set to increase with the new 1.25% health and social care levy. However, the timing and nature of the rise has rightly caused grave concern among employers nationally.
For many small businesses, the concern is acute. National insurance contributions are levied on remuneration and takes no account of an organisation’s profitability. Therefore, the burden will be borne equally by those that are profitable and those that are barely surviving the effects of the Covid-19 (Coronavirus) pandemic, but are nevertheless trying their best to retain staff. In the latter case and coming so soon on the back of the pandemic, job losses are inevitable.
Even for larger businesses that may be able to sustain the increase, there will likely be a greater reluctance to invest in new staff, particularly with the planned rise in corporation tax from April 2023. For existing staff, pay rises are likely to suffer as employers seek to minimise the cost increase.
Whether large or small, as the levy takes no account of profit, the effect on employers and jobs will be accentuated if the economic outlook worsens.
Employers are not only bearing the cost of the tax increase alongside employees but, of course, they also need to collect it on behalf of the government. This will mean HR and payroll teams familiarising themselves with the new rules and liaising with software and payroll providers to make sure that the required updates are implemented correctly. This is not to mention the additional time demand on employers from dealing with the inevitable employee queries.
So, while most will welcome a focus on the NHS and social care, the rise comes at a time of struggle for many employers. With continued economic uncertainty, the cost and administrative burden of the new tax is something that employers could do without right now.
Lee McIntyre-Hamilton is a tax partner at Keystone Law