The Chancellor’s decision to increase employers’ National Insurance Contributions (NICs) by an extra 0.5 per cent from April 2011 is causing much concern within the small business community, as many companies fear the rise may have a significant effect on the growth of the economy and firm’s hiring decisions.
The British Chambers of Commerce’s plea to the Government to scrap next year’s planned NICs increase and instead raise revenues by increasing VAT to 18.5 per cent could be far less damaging to businesses, says Bibby Financial Services.
Edward Rimmer, chief executive, Bibby Financial Services said: “The Chancellor’s announcement to increase National Insurance Contributions has come as a nasty surprise to small businesses across the UK, which continue to suffer the effects of the recession.
“Looking forward, increasing a tax damaging to businesses, such as NICs, is likely to have a detrimental effect on the economy and cause a potential dip in business, as the cost of employing somebody will increase by one per cent, making firms more reluctant to take on new staff.
“However, a one per cent rise in VAT would generate roughly the same amount of revenues as the National Insurance increase and be a less damaging tax burden for businesses, which are striving to recover from the economic downturn. There is of course a need to reduce the UK’s deficit - using VAT might be a better way to achieve this.
“Whatever the future holds, it is more important than ever for firms of all sizes to keep costs under control and ensure credit management processes are robust and watertight. Cash is king and a healthy flow of funds should be the number one priority. With this in mind, cash flow solutions, such as invoice finance, can ensure a regular and smooth flow of cash into the business which make all the difference between boom and bust.
“There is no doubt that there are more tough times ahead, but with sufficient funding in place, firms can reduce the burden of cash flow problems and make the path to recovery more accessible at a time when they need it most.”
Posted on 03 March 2010