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Cath Everett

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NI holiday not enough to avoid double dip


A coalition government scheme to provide a national insurance ‘holiday’ for start-ups does not go far enough and must be accompanied by further tax breaks if small businesses are to spearhead economic recovery, an employers’ body has warned.

The government is hoping that job creation by the private sector will counterbalance job cuts of an expected 600,000 in the public sector, the equivalent of 10% of the current workforce, and help prevent the economy from moving into a double-dip recession.
The ‘Regional Employer National Insurance Contributions Holiday for New Businesses’ initiative means that start-ups located outside of London and the South-East will not have to pay NICs for the first 10 people they hire in their first year of operation.
The NI holiday applies to each staff member’s first 52 weeks of employment and is expected to save employers £5,000 per staff member. The government, which unveiled the initiative in its June budget, estimates that 400,000 new businesses could benefit to the tune of £50,000 each.
The scheme, which is intended to boost job creation, is open to companies that were established on or after 22 June this year and will run until 3 September 2013. While it does not cover companies operating in the agricultural, fishing or coal sectors, it does follow the introduction of other tax incentives. These include a partial reversal of the previous government’s plan to increase employers’ NICs by 1% and a 1% reduction in small firms’ levels of corporation tax.
But according to the Forum of Private Business, disproportionate taxation will remain a major barrier to growth for small businesses unless the government makes further tax cuts.
The Forum’s chief executive Phil Orford said: “For years, small business taxation has steadily increased so this reduction in NI for some firms has to be welcomed. However, if the government is serious about creating conditions for real economic recovery based on strong small business growth, it needs to introduce even bolder tax policies.”
Given the significant threats to cash flow due to lack of bank credit and increasingly late payments by customers, recruitment was likely to be slow during the first 12 months of operation of any new firm. As a result, the scheme should be available for longer than simply the first year of business, he added.
A survey of the Forum’s tax and budget member panel indicated that 45% of respondents found their tax burden a ‘very serious’ matter. More than two thirds of small and medium business owners believed this burden was unfair, while 43% said that ‘fairness’ should be a priority of any tax system.
One in five wanted to see a simpler system, while 13% called for the current system to be reformed in order to make the UK more competitive internationally. The government has just created a new Office of Tax Simplification in a bid to provide ‘independent advice on simplifying the tax system’.


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