The government on Thursday (22 September) announced it would be reversing the 1.25-percentage point rise in National Insurance from 6 November.
British Chambers of Commerce director general Shevaun Haviland said after months of campaigning, the government announcement to reverse the increase to the National Insurance Contribution (NIC) is a big win for the British Chambers of Commerce and the business community.
“This is much needed support for businesses during these difficult times,” she said.
“There are a range of other challenges that must be addressed including labour shortages, supply chain disruption, and rising raw material costs. Tomorrow’s mini budget from the Chancellor is now a critical moment. To truly revitalise our economy for the difficult months ahead then tomorrow must bring a clear long-term plan that gives business the confidence to grow.”
Federation of Small Businesses (FSB) national chair Martin McTague said the government has listened to FSB’s campaign to reverse April’s National Insurance and Dividend Taxes.
“These made it more expensive for small business owners to pay employees or themselves, but it also made it more expensive to start-up as self-employed and reduced pay for millions of employees,” he said.
“It was a spectacularly bad tax, contributing to the economic slowdown and worsening the cost of living crisis. Small businesses are glad to see the back of it.
“Last year, we estimated that the jobs tax hike could mean 50,000 fewer jobs in economy and add billions to the costs of doing business, when small firms are already facing a toxic cocktail of rampant inflation, record-high interest rates, spiralling energy costs.
“Reversing all four NICs rises — employer, employees, self-employed and dividend equivalent — is a clear and decisive action support growth and will support livelihoods, jobs and small businesses across the UK, aligning with the Government’s levelling up agenda.”
Mr McTague said the FSB is also pleased to see the Employment Allowance, the FSB-designed measure to remove the first £5,000 off every small employer’s NICs bill, retained at the same level. This means that small businesses can employ four staff on the living wage without paying a penny in employer NICs.
PwC tax partner Alison Hill said the decision to reverse April’s National Insurance increase for individuals and businesses has been long-trailed.
“Changing a tax code midway through the tax year isn’t going to be straightforward but April 2023 is a long way off, and doing nothing was clearly not an option being considered by the new Government given the rising cost of living,” she said.
“While this will be expensive, at an estimated annual cost of £13 billion, rowing back on the 1.25 per cent increase for employers and employees is a fast and obvious move given the financial challenges faced by so many. However despite its apparent simplicity, there are likely to be difficulties implementing it under present government software and challenges for payroll providers, who will have only recently updated their systems.”
John Harding, employment tax partner at PwC, added that while most payroll systems will issue a patch for the new rate from 6 November, any systems that are more bespoke will need attention and early engagement with the provider.
The government Chancellor confirmed funding for health and social care services will be protected and will remain at the same level as if the levy were in place.
Almost 28 million people will keep an extra £330 of their money on average next year, whilst 920,000 businesses are set to save almost £10,000 on average next year thanks to the change.
The government said scrapping the rise will reduce tax for 920,000 businesses by nearly £10,000 on average next year as they will no longer pay a higher level of employer National Insurance and can now invest the money as they choose.
The government will also cancel the planned Health and Social Care Levy — a separate tax that was coming into force in April 2023 to replace this year’s National Insurance rise. This will help almost 28 million people across the UK keep more of what they earn, worth an extra £330 on average in 2023–24, with an additional saving of around £135 on average this year.
