Some interesting stats here following the latest Budget, which reveals the true cost to employers in extra NI payments they will be obliged to calculate and collect on behalf of HMRC.
Employers paying a young workforce the minimum wages will have to pay hundreds more when the hourly rates increase despite the National Insurance (NI) cut in the Spring Budget. The cut to NI and minimum wages rises coming into effect from April mean young people aged between 16 and 23 will pay less NI but be paid a higher hourly wage. But businesses, particularly in retail, hospitality, cleaning and maintenance, employing young people will be paying more in wages and NI contributions.
This is because the chancellor has not changed the NI percentage of 13.8% which employers pay or raised the threshold for employers in line with minimum wage rises. The changes mean employers are pulled into the ‘fiscal drag’ and are paying more for staff on the National Living Wage and National Minimum Wage. Analysis by The Accountancy Partnership found employees working 35 hours per week and receiving the minimum wage for their age group will cost employers up to an additional £217 per month from April 2024, compared to the 2023/24 tax year.
Businesses can expect to see an increase in the cost of employing someone aged 23 and older go up by £176 per month, aged 21 to 22 up by £217 per month, an increase of £191 for 18- to 20-year-olds, and £193 for those aged 16, 17, or working as an apprentice.
Mr Hunt reduced NI contributions by two pence and told a rowdy House of Commons this week 27 million British workers will save £900 a year. Workers will now pay 8% of their taxable salary from April 6, which is down from 12% last year, while NI contributions for the self-employed were cut from 9% to 6% to provide a saving of £650 a year. From April, employees aged 21 or over will be entitled to the National Living Wage at a new rate of £11.44 an hour, up from £10.42.
The National Minimum Wage will apply to youngsters aged 16 to 17, who will be paid £6.40 per hour, up from £5.28, and those aged 18 to 20 will be paid £8.60, up from £7.49. The Low Pay Commission estimated there are around 1.6m workers paid at or below the minimum wage in April 2022, which is around 5% of all UK workers. It is estimated that 45% of all jobs paying at or below the minimum wage are in retail, hospitality, cleaning, and maintenance.
While there may be an NI cut, the threshold for tax payments has not increased and means more will be paid in tax. This is known as a ‘stealth tax’ or ‘fiscal drag’ and can apply to businesses and workers. An 18 to 20 year-old earning £16,000 will end up paying £530 more in tax a year on an additional £2,650 of earnings. The salary group who benefits most from Mr Hunt’s announcement are those who earn between £32,000 and £55,000 or more than £131,000.
Workers outside these salary brackets will be paying more in 2024/25 than they would if the chancellor had raised the tax thresholds in the Spring Budget. The Office for Budget Responsibility has said that if the low tax threshold of £12,750 – the point at which people start paying income tax – had increased with inflation , it would have been set at £15,220 for 2024/25. This would have given workers an extra £2,650 tax-free each year.
Lee Murphy, managing director of The Accountancy Partnership, said:
“The NI cut does not benefit young people who will be getting an hourly pay rise. Instead, because the tax thresholds haven’t changed, they will be pulled into the fiscal drag and end up paying more in tax.
“Employers must now pay higher wages and higher NI costs for each employee because the threshold and percentage of NI employer contributions has similarly not changed. The additional costs are substantial and will likely dramatically affect the retail and hospitality sectors when both have endured extreme difficulty in recent years. There are an estimated 5.5million SMEs in the UK and they are truly the beating heart of British society. Their importance to the economy cannot be overstated.
“Despite pleas from the hospitality and retail sectors last year, calls for further help these have not been answered. The country is losing pubs, at a reported rate of around two a day in 2023, and major brands such as The Body Shop’s collapse into administration is a stark warning SMEs and big businesses are operating on a knife edge in modern times.”
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