NIC+ increase could present an opportunityby
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.
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.
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.