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The NI Increase: A guide for small businesses

Last month, the government announced a temporary National Insurance increase of 1.25% for employees, employers, and the self-employed. This is planned to last from April 2022 until April 2023. This health and social care levy was implemented to raise funds for the NHS and social care bodies across the UK in the wake of the pandemic.

But what does this £12bn tax rise mean for small businesses? Financial planning and bookkeeping can be tricky enough at the best of times but following the Prime Minister’s controversial announcement, it could be even harder.

CWR Chartered Accountants has produced a complete guide for small businesses about the new tax increase so you don’t have to worry any longer.

Who will it affect?

The NI increase will apply to all Class 1 (employee and employer), Class 1A and 1B, and Class 4 (self-employed) NICs.

It will also apply to internationally mobile people but only when they have a NIC liability.

What about existing NIC exemptions?

It will continue to benefit from all existing NIC respites. This includes apprentices under the age of 25, employees under the age of 21, qualifying freeport employees, and the employment allowance.

Like current tax regulations, the raw figure taken from income will be based on the amount of income. For example, a person earning the median basic rate taxpayer’s income of £24,100 will be paying an additional £180 compared to their last taxable payment. Meanwhile, a person earning the median for a higher rate of income, £67,100, will be taxed an additional £715.

How will this impact small businesses?

The biggest effect this tax increase will have is it will make staff more expensive. For small businesses crawling out of lockdown and the wake of the pandemic, this can make the prospect of hiring staff much more daunting and can mean some smaller businesses go understaffed next year.

81% of UK SMEs have already spoken out to claim that the government’s financial support packages weren’t enough and we saw too many closures of small businesses over the last two years.

If you’re still concerned or unsure about the new levy, get in touch with CWR Chartered Accountants today for a free consultation for prospective clients.