The Prime Minister has confirmed a tax rise for millions of British workers as part of a bid to reform social care - with critics saying it will hit employers and workers HARD.
Boris Johnson announced to Parliament yesterday a 1.25 percentage points increase in National Insurance contributions (NICs) as part of a new health and social care levy, amounting to £12billion in total over several years.
The PM admitted the plan was breaking one of the pledges he made in his manifesto ahead of the 2019 general election – a vow not to raise income tax, VAT or National Insurance Contributions (NICs).
Yesterday in the House of Commons, however, came the news that Brits who earn over £9,568 a year will be hit with the National Insurance hike.
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The income generated from the tax rise will be split between social care and the health service, to clear the backlogs of procedures abandoned or delayed during the coronavirus crisis.
“I’ll be absolutely frank with you, this levy will break our manifesto commitment. But a global pandemic wasn’t in our manifesto either,” Johnson told MPs.
The PM’s decision has been met with frustration on many fronts, although it was also branded by IFS think tank director Paul Johnson as “a progressive and broad based increase."
But how will the changes affect employers and workforces? HR Grapevine speaks to several experts below.
NI raise will impact employer costs
Senior Payroll Software Developer at Moorepay, David McLoughlin, said: “If the increase to National Insurance is just a rate increase then it will not be too hard to implement, but the raise will impact on employer costs at a time when many businesses are struggling to cope with the effects of coronavirus and Brexit.
“We will have to wait until we get more detail to find out how much of an impact the new Health and Social Care Levy will have on employers. Hopefully it will all be handled through RTI and payroll software can take the burden, but software providers will need time to implement and test their solutions.”
Small businesses could be hit hard too
Alan Thomas, UK CEO at Simply Business, one of the UK’s largest providers of small business insurance, believes the National Insurance rise will have a “significant impact on the UK’s small business owners and sole traders” and comes at a time when many have only just started their recovery from the worst of the pandemic.
Thomas explained: “Few have been hit harder by Covid-19 than the self-employed, with small businesses losing over £22,000 each on average. With over six million small businesses in the UK – contributing trillions of pounds a year in turnover – it is crucial to our collective recovery that they bounce back.
“The National Insurance rise is the latest in a long line of setbacks, as self-employed people look to revive their livelihoods.
“We understand it’s incredibly important that the Government addresses the social care crisis, but we urge the Prime Minister to do this without placing another hurdle in front of the small business owners and self-employed people who have been so heavily impacted by the pandemic.”
Workers will also bear the burden
Rebecca Seeley Harris, former adviser to the office of tax simplification and Chair of the Employment Status Forum, said of the changes: "The levy set out [yesterday] by the Prime Minister will be made on both the employed and self-employed whose income falls above the Primary Threshold/Lower Profits Limit of £9,569. The dividend rate will be increased to 8.75% and 33.75% respectively. This will increase from April 2022.
"The Treasury report states that only 40% of individuals are affected by the increase because of the combination of the £2,000 tax-free allowance and the personal allowance. But this 40% is made up of those who were also excluded from any meaningful help during the pandemic. They are the forgotten and now bear this burden too. Thousands are still struggling, especially those in events, hospitality and the arts.
"What’s more, in the case of umbrella company workers, most will end up paying both the employers and employees NICs rises so they will be taxed twice. This is obviously another blow to workers who are already in a precarious position. This will include care workers and NHS staff (working in the sector that the levy is supposed to fund) going through umbrellas – more and more are expected to be self-employed or must agree to be employed through agency umbrellas, many of which are unethical. It’s an untenable situation for them."
Tax hike will ‘really hurt’ payroll too
James Poyser, CEO of inniAccounts and Founder of offpayroll.org.uk added: "Limited company professionals already had a corporation tax hike earlier in the year so this news will really hurt at a time when many are still trying to recover from the impact of IR35 off-payroll reforms and the economic fallout of Covid-19.
“We had hoped that this cohort of workers would be left alone but this will be seen by self-employed professionals as yet another cynical indictment by the Conservative Government on so-called personal service companies. The Government are blinkered to the benefits that these companies, self-starters and entrepreneurs bring to the economy, and the value they offer companies across the UK. We will continue to work with BEIS to ensure policy reflects the changing nature of work and that workers’ rights are upheld."