NI holiday kicks in - but small business groups want more

Small firms in the regions get a new tax break - but will it make a substantive difference?

by James Taylor
Last Updated: 06 Nov 2012

Today saw the launch of the snappily-named ‘Regional Employer NICs Holiday for New Businesses’ - a tax break that gives new firms a one-year holiday from National Insurance Contributions for up to ten staff they employ in their first year of business. Any kind of tax break to encourage recruitment has to be a good thing. But will this (relatively small) measure be enough of an incentive? Or would the Government be better off focusing on other areas, like making the rest of the tax and legal code slightly easier for the average non-expert to understand?

First mooted by the Tories before the Election and now official Coalition policy, the theory is that the NI holiday will incentivise new firms to hire by reducing the cost of employment - thus helping to stimulate a job market that's likely to be reeling from the impact of mass public sector redundancies. The scheme will run for the next three years, and most new businesses outside London and the South East wil be eligible (the theory, being, presumably, that the latter don't need as much help). 

There's no question that this is a welcome and encouraging move by the Government, particularly in light of its other attempts to ease the tax burden for small firms (including the cut in corporation tax and the reversal of Labour's daft NI hike). According to the Forum of Private Business, more than two-thirds of SME owners think their tax burden is unfair, after all the hikes they've seen in the last decade. So this is a step in the right direction. 

But how much difference will it make? The Government reckons 400,000 small businesses could benefit - and with a maximum saving of £5k per head, they could save up to £50k. So it's no small beer, in theory; that's £2bn that would have otherwise been filling Treasury coffers. However, as the FPB points out, cash is likely to be pretty tight for most new firms in the coming months, as they battle with tight-fisted banks and late payers - so recruitment could be slow. It thinks the Coalition needs to go even further - like making the tax break available past the first year.

Unfortunately, the Government's hands are rather tied by its well-attested lack of cash. So perhaps its energies would be better spent on hacking away at that old chestnut, red tape. Although its new Office for Tax Simplification has received a cautious welcome, payroll specialist Iris Software says SMEs are less convinced about proposed new measures on flexible working, pensions and payroll. After all, if businesses spent less time and money on compliance, they'd have more money free to pay salaries...

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