Employers can plan for the Budget announcements by firstly reviewing their accounts and considering the impact of the national insurance (NI) increase on their projections for profits and cashflow in particular. It is important to forecast the immediate and longer-term impacts now so that they have sufficient time to make any corresponding adjustments and provisions.
Any impact on the national insurance increase is going to be highly dependent on the size and type of employer. For example, already struggling organisations may need to re-evaluate their reward and benefits strategies, particularly if they are also impacted by the changes to the national living wage and the national minimum wage. More financially buoyant ones may choose to offset the impact in other ways, for example, by raising customer prices or re-visiting their investment priorities. The corresponding increase to the employment allowance from £5,000 to £10,500 means that small employers may be able to employ up to four full-time workers at the national living wage without paying national insurance on their wages.
Employers that are under financial pressure, and that are unable to increase customer prices and absorb a squeeze on their profits, may respond to the national insurance increase by freezing salaries, or postponing planned recruitment while they re-adjust. Some may be more inclined to hire more off-payroll workers. They may cut back on benefits in kind, such as a company car, low-interest loans, and the provision of medical insurance.
With regard to capital gains tax, the rate increase was not as high as some had feared it would be. As a consequence, for those employers operating share incentive schemes, they remain an attractive and tax-efficient reward and benefits strategy, compared to other options that would fall under the employment income tax mechanisms.
Adam Craggs is a tax partner at law firm RPC
