Following this week’s announcement that the UK government are going to introduce a 1.25% tax increase in April of next year as a way of putting back into health and social care, we look into the effects it could have on businesses.
After weeks of speculation, the UK government has officially announced the ‘Health and Social Care Levy’ – an extra tax to fund social care in England to help the NHS recoup after Covid-19.
The tax will begin as a 1.25% rise in National Insurance (NI) for employees and employers from April 2022 and will sequentially become a separate tax, appearing on employees’ payslips, on earned income from 2023 onwards.
But with estimations that the new rates will cost employers around £6.5bn, a large number of UK businesses are deeming the newly instigated national insurance surge as more of a tax on jobs, a blow to economic recovery, and even an ignorance of the damage from the pandemic, rather than a means of intended economic restoration.
With more and more sectors and thinktanks backlashing the government’s new plans for an increase in NI tax to pay for the country’s social care, we examine what the implications may be to the future of the UK tech business landscape, the correlation it may have on profit, and other things to consider.
Wrong Place, Wrong Time?
Industry leaders fully recognise the need to increase funding for health and social care. However, following on from the past year’s upheaval, in which companies have seen more redundancies and wage reductions than ever, the UK government are being plugged as implementing the wrong form of tax rise to help cope.
Economist and Director of the Institute for Fiscal Studies, Paul Johnson, adds that “if you had to do something with income tax, NI or VAT, it would have been better if it had been something which impacted all generations similarly, it would be better if it affected people with rental income and so on.”
IT Recruitment Stifle vs. Demand Generation
In the pandemic, businesses’ dependence on technology has reached new heights and it goes without saying that IT professionals across the board have seen a soar in workload in an attempt to deal with remote working cases. But with April 2022’s new legislations and already constrained budgets, significant costs on firms are inarguably going to land tighter resources causing less job protection and a hiring deterrent.
This increased demand for IT capacity is simply not translating into efficient acquisition meaning the hiring brunt on IT and tech sectors could herald the start of a much wider socio-economical challenge.
If you had to do something with income tax, NI or VAT, it would have been better if it had been something which impacted all generations similarly, it would be better if it affected people with rental income and so on.
Paul Johnson
Economist and Director, Institute for Fiscal Studies
The SME Community
Whilst the 1.25% increase may feel feasible for mid-sized businesses, resource-strained small businesses the increase could leave a much more damaging impression.
Taking into account that it’s not just employees, but also employers, that pay NI, the new rules could be converted into the form of lower wages or higher prices that may not be sustainable for small businesses in the long run.
How to Prepare?
So, the question on all business leaders’ lips is ‘what to do next?’ and, just like in any context of income and outgoings change, organisations should be first off ensuring they have a strong understanding and full grasp of their current financial positioning. This includes a cost rundown that would incur from the change and making certain new 2022 payrolls can be afforded.
Forward-thinking businesses of today are making sure they’re keeping up to date and invested or investing in accounting and automated accounting software as a low-budget solution to get to grips with figures and to mitigate costly mistakes.
To not have this knowledge in place is a reckless voyage for the future of your business but taking early action will reduce the shock of the transition period.
