How will the upcoming changes to National Insurance impact profitability?

News Posted 27/09/21
Surrey-based accountancy firm TWP is calling on businesses to review their profitability, given upcoming changes to National Insurance.

From April 2022, employers’ National Insurance contributions (NICs) will increase by 1.25 percentage points to help fund health and social care.

The team at TWP say that this move, which will eventually be enshrined in the new Health and Social Care Levy, could put a halt to businesses’ plans to improve profitability. The increase would drastically increase the employment costs that most businesses had to pay, which in certain sectors could have a drastic impact on profits.

Stephen Nicholls, business and corporate tax manager at TWP, said: “While it is understandable that the government needs to raise revenues to meet the growing cost of health and social care, the reality is that this increase is going to have a direct detriment to the profits of many businesses.

“Many of the sectors hardest hit during the last year, such as hospitality and leisure, are reliant on larger workforces and it is they who may be worse affected by this change.

“What’s more, by taking money out of the pockets of workers some businesses may see a reduction in how much consumers spend.”

Business owners, in particular, may be adversely affected by the change to NICs, as they experience a triple whammy to their income.

Stephen added: “If you own a business, your own salary will be affected by the NIC increase, the profits of your company will be hit by the increase to employer contributions and the increase in the dividend tax rate, also by 1.25 percentage points, will mean that any profits you do withdraw from the company above the £2,000 tax-free allowance, will be taxed more as well.”

Given these upcoming changes next year, TWP is calling on business owners to review their profit plans and review their remuneration policies to ensure the additional employment costs don’t limit their success.

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