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NIC+ increase could present an opportunity

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The pre-Budget NIC and tax rises might just be good news for adept advisers. Philip Fisher explores the opportunities an increase in taxes creates for practitioners. 

9th Sep 2021
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For decades, perhaps even generations, national insurance contributions have been the stealth tax of choice utilised by succeeding Chancellors of the Exchequer.

While there would be uproar in the media if the rate of income tax increased or there was a threat of extending VAT to books, nobody batted an eyelid when an incumbent at number 11 finagled an extra percentage point or two on NIC.

In part, that might be because when the 'tax' was originally created, it was a genuine contributory scheme intended to finance social costs.

However, the country is now ruled over by a man who could not achieve stealth even in his sleep.

Rather than keeping his mouth shut and making a change, which is theoretically intended to finance social care, our dear leader has chosen to announce it in the customary fashion of leaks to friendly media sources.

One oddity is that on the same day as this announcement, we were told that a Budget is coming next month. Why introduce its main measure now?

Ramifications of the NIC hike

Ironically, even according to newspapers that act as a publicity machine for his party, the tax rise is in fact little more than a method of paying for what they refer to as “coronavirus” but we all know is actually the knock-on cost of leaving Europe without making the necessary arrangements in the four-year exit period.

There could be many ramifications of these changes.

As we know Boris Johnson has never much liked obeying laws or keeping his word. At the same time as announcing an increase in NIC, breaking one manifesto pledge, the government has also gone back on another: its triple lock pensions policy.

However, he has gone a step further breaking a third manifesto pledge to try calm angry red/blue wall MPs. In addition to extending the NIC supplement (apparently not the normal charge) to pensioners, Johnson is also planning to charge additional income tax on dividends.

It will be interesting to see how he explains why that is not breaking the manifesto promise that there would be no increase in income taxes during this Parliament.

While the NIC change and associated cosmetic changes might be acceptable, you just get the feeling that having realised that he can get away with ignoring three manifesto pledges, (further) unfavourable changes to the rates of income tax and VAT could very soon be in the offing – perhaps as soon as next month.

A death knell for some businesses

In principle a dual increase of 1.25% in the amount of NIC paid by both employers and employees may not be that significant, but many employers might feel obliged to fund both, since recruiting vaguely capably staff has become nigh on impossible in many industries, including our own in many cases.

It gets even better since anyone running a business will also have to pay the additional 1.25% on profits either from self-employment, salary or dividends as well.

As a general rule, clients do not get that excited, or even notice, small increases to inconsequential taxes. However, times are tight and this could just be the straw that breaks the camel’s back.

Indeed, when so many businesses are already on the brink, this could be a death knell for some, and hardly good news for our beleaguered economy. Others that survive will still feel the pinch.

NIC strategies

Therefore, we should all be brushing down our tax and NIC minimisation strategies in the hope that larger clients will see the benefits of paying fees to us rather than taxes to HMRC. While many of the best avoidance arrangements have been removed by law changes, surely it is not beyond the wit of the best advisers to find solutions to this little issue.

It will also be a way of reminding clients how adept we are at sorting out these kinds of problems, ahead of other changes to pay for “coronavirus”, which will surely be inevitable, especially if inflation forces interest rates up in the next year or two.

Replies (9)

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rebecca cave
By Rebecca Cave
09th Sep 2021 15:03

Some good points well made there Philip, but I take issue with: "dual increase of 1.25% in the amount of NIC paid. "
No.
Its an increase of 1.25 percentage points: from 12% to 13.25% for employees, and 13.8% to 15.05% for employers. This is an increase in the amount paid of 10.4% for employees and 9% for employers.

The self employed suffer an increase in class 4 NIC from 9% to 10.25%, so a whopping 13.88% increase in the amount paid of class 4 NIC. These figures are only for the basic rate band of-course.

The rate applicable to unlimited higher band of class 1 and class 4 NIC jumps from 2% to 3.25%, that is an increase in the amount paid of 62.5%!!!!!!!!!!!!!!!!!!!!!!!!

Thanks (2)
Replying to Rebecca Cave:
blue sheep
By Nigel Henshaw
10th Sep 2021 10:01

Rebecca Cave wrote:

Some good points well made there Philip, but I take issue with: "dual increase of 1.25% in the amount of NIC paid. "
No.
!

Yes but if you are self employed with employees it is a dual increase isn't it? Same for a company Director with employees, in fact you could even end up with a triple hit, employers, employees and dividend if you are not careful or unable to arrange things accordingly

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By Justin Bryant
09th Sep 2021 16:05

At present, NIC savings are possible using salary sacrifice, where employees forego salary in exchange for more tax / NIC-efficient benefits in kind. Salary sacrifice is a key feature of employers’ flexible benefit arrangements, particularly where salary is sacrificed for enhanced employer pension contributions or to provide Ultra Low Emissions vehicles such as electric cars. It is not yet known whether the new Levy will be compatible with salary sacrifice, especially post-April 2023 when it is separated out from mainstream NIC. However, as more details become available, employers should consider whether salary sacrifice arrangements may be beneficial in the interim, to help offset some of the increased NIC costs.

Maybe Murphy Richards has some NIC planning ideas re nannies etc.
https://www.theguardian.com/money/2001/jan/14/childcare.observercashsection

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By Donald MacKenzie
10th Sep 2021 10:24

This article would have benefitted from a lower level of anti-Brexit and anti-Boris prejudice.

A bit tasteless to want to find ways to escape liability to contribute towards Covid recovery.

Thanks (6)
Replying to Donald MacKenzie:
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By Justin Bryant
10th Sep 2021 12:02

But by that measure all tax advisors are a bit tasteless (and the better the more tasteless), since generally there is no UK tax hypothecation.

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Replying to Justin Bryant:
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By Donald MacKenzie
10th Sep 2021 13:56

Tax advice is neutral. Most tax payers need help and advice to pay the tax due and only the tax due. It is not wrong to advise tax payers how to use pensions, investment in forestry, timing of capital purchases or whatever.
But devising tax schemes to push the boundaries of avoidance is not "better". It is not "better" that taxpayers were advised to use dodgy film finance schemes or all the others. It is not "better" that advisors rake in fees then walk away.

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Replying to Donald MacKenzie:
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By Winnie Wiggleroom
10th Sep 2021 14:04

Donald MacKenzie wrote:

Tax advice is neutral. Most tax payers need help and advice to pay the tax due and only the tax due. It is not wrong to advise tax payers how to use pensions, investment in forestry, timing of capital purchases or whatever.
But devising tax schemes to push the boundaries of avoidance is not "better". It is not "better" that taxpayers were advised to use dodgy film finance schemes or all the others. It is not "better" that advisors rake in fees then walk away.

I think you are confusing legitimate tax planning and tax avoidance schemes. Admittedly the treasury, HMRC and the press all make it sound the same these days, but it is not.

Nothing wrong with looking at ways to mitigate tax rises, thats what we all do for our clients every day of the week, thats what they pay us for.

Thanks (2)
Replying to Donald MacKenzie:
By Mike18
10th Sep 2021 14:54

Your reply would have benfitted from an absence of pro-Brexit and pro-Boris blinkers.

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By Dib
16th Sep 2021 16:35

The ship of state - the only ship that leaks from the top (Yes, Minister)

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