The recent budget unveiled a raft of new changes to boost the economy. Whilst with any budget, there is always concern with both winners and losers, changes such as corporation tax reductions and lower National Insurance for small businesses will certainly help businesses. To follow is a brief outline of some key changes.
- National Living wage (NLW)
From next April, the NLW will rise to £7.20 and then to £9 an hour by 2020. While this is a promising move, the impact on both the employee and the employer may be rather different.While there will be a happy boost in earnings for 2.7 million workers, costs will increase notably for some businesses. The government has advised there will be reductions to Corporation Tax and an increase in the Employment Allowance. Employees will be sure to welcome this increase, however, businesses, particularly small businesses, are advised to watch this space closely – the big question lies with whether they can truly afford this increase.
The NLW applies to workers over 25 and coincides with the announcement of benefits being cut to those already in work. These cuts, however, will not apply to Maternity pay and disability benefits.
This will increase by a further £1000 to £3000. Businesses will have their employer National Insurance bill cut by another £1,000 from April 2016, as the Employment Allowance rises from £2000 to £3000. This means, next year, businesses will be able to employ 4 people full time on the National Living Wage and pay no National Insurance at all. As a result of the allowance, on a positive note, 90,000 employers will see their employer NIC’s liability reduced to zero. This has been introduced to try and offset the increase in wages, however, the question arises if thiswill really go far enough. The Employment Allowance will only allow employers (who are currently paying minimum wage) to offset the cost of the Living Wage increases up to 2,000 hours. After that, the business will be a net loser unless it is profitable enough to benefit from the reduction in the rate of corporation tax.
- 3 million new apprenticeships
These will be created by 2020 and funded by a levy on larger employers.This suggests that firms that are committed to training will be able to get back more than they put in. The definition of large is usually taken to mean more than 250 employees. In practice, this may be an issue for large businesses who are not using apprentices but will still be taxed. Should businesses who are already expending time, money and resources on apprentices also be taxed?
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