Regional NIC holiday for start-ups kicks off
New businesses outside of London, the South East and East of England can start claiming a holiday from NIC contributions for their first 10 employees starting from Monday 6 September until 5 Setpember 2013.
The Regional Employer National Insurance contributions Holiday for New Businesses, to give it the official name, was unveiled by Chancellor George Osborne’s June Budget and will allow new employers to make a deduction against the amount of Class 1 NICs they pay each month or quarter. The holiday will apply to the first 10 “qualifying employees” taken on by companies that started after 22 June Budget statement.
An HMRC Technical Note (140kb PDF) sets out the detailed conditions attached to the holiday, which will apply during the employees’ first year with the firm or until they leave, and will be limited to £5,000 for each employee.
Qualifying criteria
Because of European Union restrictions on state aid to certain industries and the potential for existing companies to reconstitute themselves in the hope of gaining the relief, certain criteria have been set out for qualifying firms and employees.
Europe’s State Aid rules are designed to prevent members from supporting businesses in a way that would give them an unfair advantage over competitors. Businesses in most sectors are allowed to receive aid of up to €200,000 over a period of three years, but there are limits for certain industries such as coal, which is not allowed to benefit from State Aid; agriculture, where the limit is €7,500; fisheries and aquaculture, where the limit is €30,000; and road transport which has a €100,000 limit. Companies in these restricted sectors will only be able to claim the NIC holiday up to their industry’s State Aid threshold. And no State Aid will be allowed if the amount of the NIC holiday combined with any aid already provided would take the recipient above the €200,000 block exemption or the specific industry ceiling. Further details will be available from the BusinessLink website.
The technical note adds another caveat by pointing out that the National Insurance Bill has yet to clear Parliament and is expected to receive Royal Assent in early 2011. HMRC Commissioners are able to deploy their existing collection and management powers to allow the holiday to operate from 6 September 2010, but if for any reason the draft legislation published by HMRC is not enacted, firms that took advantage of the holiday would have to pay back any National Insurance contributions they withheld by by 19 April 2011.
Missing the target?
At a time of deep cuts in spending within the public sector and a major rationalisation of government support schemes, small businesses will be thankful for any help they can get. But UHY Hacker Young partner Roy Maugham, complained that some of the country’s most deprived districts have been excluded from the holiday scheme. “The Government is denying invaluable NICs savings to many of the businesses that would need them the most,” he said.
Greater London includes six of the most deprived boroughs in England and South East areas such as Portsmouth, Southampton and Southend-on-Sea have with high concentration of public sector workers will miss out on a scheme that was intended to lessen the impact of spending cuts, he added.
“Restricting the scheme offering by geography rather than by need is too rough a criterion. It means the scheme won’t be fair and won’t fully achieve its purpose,” said Maugham.” It seems to me that this is one of those policies produced in the rush of the Emergency Budget without too much thought about the details behind it.”
Continued...
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Comments
We've had a few comments in about this story. Here's one from the Forum of Private Business:
“For years small business taxation has steadily increased, so this reduction in NI for some firms has to be welcomed,” said the Forum’s chief executive Phil Orford. “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.”
He added: “Given the significant threats to cash flow and business growth from issues such as a lack of bank finance and increasing late payments, recruitment is likely to be slow during the first 12 months for many new firms. The scheme should be available for a longer period than just the first year they are in business.”
Will it reallly help?
Now, you are not allowed a business split or a takeover. You also can't be involved in a similar prior one, so I can't open a branch in Newcastle and qualify, or take someone over in Leeds. Ok I get it...
Over the last 10 years, I reckon I have seen 2000 clients start new businesses that would have qualified... but all here ...ie here in the South East ..oh...so they dont . However even if they did, I reckon out of them there are 5 that have more than the MD and his wife working there ( and we all know the MD and his wife pays no PAYE). None have more than 5 employees. Most New businesses struggle to get the work to keep the founder busy let alone new staff...
So in my opinion its a lot of hot air and you can argue about geography but its irrelevant. The Govt reckon it will create 800,000 new jobs....I think they will be lucky if they get 8,000.
Which works nicely for the Govt Big Tax saving ..Fanfare...result...no loss to treasury
Bet you a pint they dont publish the take up rate....
But then what do I know, Im just a simple accountant...sigh...
More rent-a-quote nonsense
So Mr Maugham criticises a policy because basing it on geography rather than need makes it "unfair"? Would Mr Maugham like to make a practical suggestion about how you would target the holiday on need? I feel sure that a policy that targeted some districts across the whole country but not others would be a nightmare, complex, and be entirely unfair on those on the boundaries in different towns. Incidentally, this is the same chap who says the tax system is too complex and taxes are too high: http://www.telegraph.co.uk/finance/economics/7962524/Tax-regime-drives-20pc-of-big-businesses-to-consider-leaving-UK.html. Strange then to criticise a scheme, albeit for small rather than large businesses, that reduces the tax burden for lots of new businesses. Lucky he doesn't need to be consistent in his rent-a-quotes...
But generally a brilliant insight into the minds of those who like to shine their exertise on the rest of us; let's criticise the Government for introducing a policy to help new businesses becaue it excludes some businesses. Well, Mr Maugham, you may not realise there is a limited pot of money available. The alternative is rarely making it available to everyone; the alternative it is usually making it available at all. Worth thinking about.
And of course Mr Maugham fails to put the holiday in the broader context of other tax reductions for small businesses, including small profits rate of CT and business rates holiday. Life ain't so bad.