Knowing your business numbers inside out can help you to gain control over your operations. It can also help your business generate higher profit margins, as you will have a better understanding of the cost of your business processes.

National Insurance in 2016: How will UK companies be affected?

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National Insurance contributions are paid by employers on the earnings and benefits of their employees. Employees pay Class 1 NIC contributions through their wages, known as ‘primary’ contributions. Employers, meanwhile, pay ‘secondary’ contributions which are dependent on the amount of the employees’ earnings.

How much Class 1 NIC will a company pay in 2016-17?

The Class 1 National Insurance contribution rate payable by an employer is 13.8%, which is a standard rate. This is paid for all employees who have earnings above £156 and less than £827, unless the employee is aged 21 or under. Apprentices who are on a statutory apprenticeship, and are aged below 25, do not count for the purposes of employer NIC contributions. Class 1 National Insurance may also be payable on some employee benefits. Very often, as this is a complex area, a business will outsource accounting to a professional company that has the necessary software to deal with employee benefits.

What is the Employment Allowance?

In April 2014, the government introduced the Employment Allowance, which meant that businesses would be entitled to £2,000 to reduce liability for Class 1 secondary National Insurance Contributions. From April 2016, the allowance will be increased to £3,000 a year. However, if the sole employee of a company is also the director, the company won’t be able to claim the Employment Allowance.

The benefits for a UK business

According to HM Treasury, around 90,000 employers will benefit from the increase in Employment Allowance, as their liability for employer National Insurance Contributions will reduce to zero. When the Employment Allowance was originally introduced in April 2014, an employer was able to take on four full time workers who were each paid the National Minimum Wage without being liable for the secondary Class 1 NICs. The increase in the allowance will mean that when employers pay the National Living Wage, they will still be able to employ four workers without being liable to the NIC charge.

The end of contracting out

Not all changes to National Insurance were good news for employers, as the termination of the additional state pension was announced by the Chancellor. Around 2,500 businesses in the private sector sponsor a contracted out pension scheme. As contracting out will now end, employers will lose a rebate on their national insurance contributions of 3.4%. They will also have to make changes to their payroll and plan for implementation.

To discuss the effects of changes to National Insurance contributions, please call us to arrange an informal appointment.