Tax hike: National Insurance increase likely to trigger redundancies once furlough ends
With the furlough scheme being withdrawn at the end of this month, the increase in National Insurance will make the cost of keeping jobs more expensive for employers, tax experts and accountants told Morning Wire today.
Yesterday, Brits were told they will be hit with £12bn-a-year tax rises to pay for increases in NHS and social care spending, with National Insurance and dividends tax in Boris Johnson’s crosshairs.
A new Health and Social Care Levy will effectively hike National Insurance Contributions for employees and employers by 1.25 per cent from April 2022, while taxes on dividends will also increase by 1.25 per cent to ensure the self-employed do not try and avoid the new levy.
The tax hikes, which will also hit people over the pension age that are still working, have been criticised widely by Tory MPs and party grandees, with the increase in National Insurance breaking a manifesto promise from the 2019 election.
Some observers warn today that the tax hike can lead to greater unemployment as costs are going up for employers.
“Unfortunately, this extra burden may have helped make the decision for employers who were in two minds over keeping the jobs of those on furlough. It will be the employees who suffer as a result,” according to Andrew Snowdon, partner and head of tax at accountancy firm UHY Hacker Young.
Gap between employed and self-employed
The increase will also see the gap between employment and self-employment widen even further. Employees and employers will both have to pay an extra 1.25 per cent in National Insurance, meaning a total increase of 2.5 per cent, whereas dividend and self-employment tax will have a singular, 1.25 per cent increase.
While the 1.25 per cent tax increase is initially through an increase in National Insurance, it will be made into a separate levy from April 2023. This creates another step and even more complexity for businesses with employees on payroll, Snowdon said.
Additionally, employees who have reached state pension age typically don’t need to pay National Insurance. However, they will be subject to the new levy, which businesses will need to take into account.
Snowdon’s colleague at UHY Hacker Young, John Sheehan, expects the rise in National Insurance to increase differences between employment and gig economy taxation.
“As a result, employers may be encouraged to make more use of self-employed workers, while shifting away from employees,” Sheehan told Morning Wire today.
“The Government has made the point in the past that it would work on closing the gap between taxation of the employed and self-employed, however, its latest tax increase will have done the opposite,” he concluded.