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Posted: Fri 29th Nov 2024
Some small businesses will be paying 100% more National Insurance (NI) tax to employ staff in specific circumstances, such as busy high street shops, despite the increase in the employment allowance, a new analysis has found.
By pushing up NI rates by just 1.2 percentage points and reducing thresholds from £9,100 to £5,000, the total increase in NI for a busy customer-facing business with up to 26 lower-paid staff could see tax bill rise by more than 100%. That is after the employment allowance is applied.
By stark contrast a small e-commerce business with fewer employees, but paid at a slightly higher rate, will see NI increases of around 17%.
For many business structures, it will be a balance of the two. In some instances, 100% of the NI increases will be offset by the increase in employment allowance.
The analysis, commissioned by Enterprise Nation, looked at the impact of the NI rises on four different employment structures after the dust settled on the
It compared four typical UK small business scenarios:
a busy high street café with 26 full-time and part-time staff
a small recruitment firm with 10 higher-paid staff
a maker-retailer, such as a microbrewery with seven staff members
an e-commerce business with 15 staff
Even within these four simple examples, the increases are wildly different.
Emma Jones, CBE, founder and CEO of Enterprise Nation, said:
“The calculations we’ve used here illustrate the complicated range of challenges that small businesses are facing right now.
“Entrepreneurs are always resilient – but they will need help to navigate the road ahead and start dealing with the implications in good time for the changes in April 2025.
"We must not allow this to threaten vulnerable businesses like independent high street shops and cafes.
“The success of that change hinges on broadening technology adoption to enhance productivity, innovation and competitiveness to create fresh efficiencies.
"This is something that could be swiftly delivered by a centralised hub for business support, for example.”
Tax accountant and Enterprise Nation adviser, Paula Tomlinson, founder of On the Spot Accountants, said:
“How do you budget for the Budget? It’s impossible to know the impact of the employers’ NI increase on your small business without running your numbers; the percentage changes in your tax cost might be NIL% or 120% or more.
“My advice is to ensure you understand the impact so you can plan and adjust, helping ensure your business is sustainable for the long term.”
Other businesses reacted to the NI increases by suggesting it could lead to increased use of freelance workers. One tech firm suggested it would look overseas for skilled employees.
Oliver Tyler, founder of plant gifting firm Shroot, said he felt the increases would be manageable, but added:
“My main concern isn’t for chains or big brands but rather for local businesses — soft play centres, larger independent shops, amusement parks — that will likely feel the squeeze from these new costs.”
Ruth Finnan, co-CEO of Circle Scotland CIC, a community interest company, with hubs based in Dundee and Glasgow, said:
“Our cash flow projections and strategy for 2025 will now have to be re-looked at and potentially salary increases will now not be possible.
"Increasing costs on small employers to fund public sector workers' wages will result in the pay deficit between the public sector and the third sector employees becoming wider.”
