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An increase in employers’ national insurance would have far-reaching consequences for the self-employed, small business owners and some of the country’s most vulnerable workers, tax experts have warned.
Prime Minister Sir Keir Starmer this week refused to rule out an increase in employers’ national insurance contributions, a tax that could raise billions of pounds for the country’s coffers in the October 30 budget.
Employer NI is currently charged at 13.8 per cent on all employees’ earnings over £175 per week. The main options are to increase the NI on earnings or introduce the NI on employer pension contributions.
“If the cost of hiring increases, companies will have to cover it somehow. It goes without saying that smaller companies will be hit the hardest,” said Seb Maley, chief executive of tax consultancy Qdos.
“For small, owner-managed businesses, a fee increase could be devastating,” added Rebecca Seeley Harris, founder of ReLegal Consulting. As a result, many would choose not to hire anyone or would consider using freelancers.
“The problem is that hiring someone who is not on the payroll today is fraught with difficulties and uncertainty,” he said.
For example, changes in recent years to the tax rules for off-payroll workers, known as IR35, have created a complicated outlook for companies and self-employed workers.
One result has been an increase in the number of contract or temporary workers using so-called umbrella companies.
These are payroll agencies that are responsible for the financial administration of a contractor, managing their taxes and payments. But the umbrella industry is unregulated And while there are many legitimate operators, industry experts warn that there are also many scams.
Chris Bryce, chief executive of the Association for Contractor and Self-Employed Services, said an increase in employer NI rates would “have an effect on all workers, but it has particularly far-reaching and, frankly, deeply worrying” implications for workers. general, which would lead to reductions in salaries. net salary.
In some cases, it could “push the gross pay of some general workers dangerously close to, or even below, the national minimum wage,” he said, adding that this would also create compliance issues for employers and will require recruitment agencies and recruitment agencies address it. their clients.
Crawford Temple, chief executive of Professional Passport, an independent assessor of payment intermediary compliance, said: “A proposed increase in employer NICs will penalize workers at umbrella companies, as money received by umbrella companies includes all employer costs. The higher the costs, the less money there will be for workers, so they will see a drop in their take-home pay.”
Higher costs would make things more difficult for legitimate operators, who work on razor-thin margins, Temple added, and this environment would “provide an even greater incentive for non-compliant providers to gain a stronger position in the market.” .
“Umbrella company workers are workers, but so far they have not received any protection from the Labor government,” Seeley Harris said. These workers were “particularly vulnerable,” he added.
However, other commenters said that while there were some risks for certain types of self-employed workers, an increase in employers’ NI could have positive effects for other self-employed workers.
Maley said the IR35 changes in the private sector implemented in 2021 had resulted in some businesses taking a blanket approach when adding their contingent workforce to the payroll. Increasing employers’ NI could “force companies facing higher costs to rethink this approach and potentially open the door to more opportunities for freelancers and contractors,” he said.
Dave Chaplin, CEO and founder of contracting authority ContractorCalculator, predicted that the potential increase in employers’ NI would “see more companies hiring contractors.”
He said: “While contractor daily rates may appear higher than the equivalent costs of permanent staff, the long-term savings [for employers] are important: there is no ongoing salary commitment once a project is completed, no pension contributions and, most importantly, no employers’ NI to worry about.
“It’s a win-win situation,” he said. “Businesses gain flexibility and cost control by hiring talent on an as-needed basis, while contractors who generally earn higher rates contribute more to the Treasury through their tax payments.”