UHY Ross Brooke Chartered Accountants

Businesses feel the pain of the new health and social care levy

Business tax and NICs

In order to fund the health and social care promises made in the last election manifesto the Prime Minister has had to break another manifesto promise and businesses, particularly those at the smaller end of the scale will certainly feel the pinch.

Many business owners will pay themselves through a mixture of salary and dividends with dividends often being the larger of the two figures. A 1.25% addition to dividends, employee’s and employer’s NI means that there will be less disposable income for business owners whichever way their income is taken.

Combined with the prospect of an increase in corporation tax from the current 19% to 25% from April 2023, extracting income in the form of dividends will look less and less attractive at that point.

For those perhaps in their late 40’s or 50’s who may be prepared to wait a few years for their money we may see an uptake in employer’s pension contributions which are both tax efficient for employee and employer and do not entail any NI costs for either.

During COVID many business owners who previously took their remuneration in the form of dividends, may not have been eligible for furlough support and may now be of the view that a Government that claims to support business, does not understand the difficulties that they are facing.

And what about the staff the businesses employ? As far as we know all furlough claims will cease at the end of this month and additional employers’ NI cost may tip the balance in favour of redundancies in some cases.

For those businesses fortunate enough to be doing well, there is already a country wide shortage of staff and it is not unusual for employees to play one potential employer off against another to demand higher packages. In addition, as employees will see a reduction in their own pay packets as a result of the increase in employee’s NI, there will inevitably be pressure from employees for higher pay reviews.

There are certainly lots of issues for business owners to consider but they need not be alone. Our experts are perfectly placed to support business owners with both their own personal situation and those of their business.

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