The start of the new financial year on April 6 invariably brings about changes in tax rules and other statutory financial measures that affect both businesses and individuals.
Sometimes the changes are good news and mean more money in your account. Other changes lead to cost increases, which for businesses means adjusting your budgets accordingly.
Here are the main measures that will lead to higher costs for your business in the year ahead.
Increases to the National Minimum and Living Wage
From the start of April, the legal minimum employers can pay workers of all ages has increased. The National Living Wage, which is the floor mark for all employees aged 23 and over, has gone up from £8.91 per hour to £9.50.
The National Minimum Wage for people aged under 23 has also increased by varying amounts, depending on the age bracket. The highest increase is for 21 and 22 year olds, with minimum pay going up from £8.36 to £9.18.
The legal minimum for apprentices and under 18s has aligned at £4.81 an hour, up from £4.62 and £4.30 respectively.
National Insurance Contributions going up
The National Insurance Contribution (NIC) employers must pay for every employee has gone up from 13.8% to 15.05%. The much-debated NIC increases which are aimed at funding the government’s overhaul of health and social services has been calculated as potentially costing UK businesses an extra £6.5bn a year.
However, in the chancellor’s Spring Statement, it was also announced that the Income Tax threshold would be rising to £12,750 in July, meaning NICs for anyone earning below £35,000 would likely go down. In addition, the Employment Allowance employer NIC relief for small businesses has gone up from £4,000 to £5,000.
Higher tax on company cars
Tax rules on company cars revolve around the fact that many businesses offer vehicles as part of a remuneration package. Because cars provided in these circumstances are used for personal as well as business purposes, they are classed and a benefit in kind and a cash value is added to the employee’s income for tax purposes.
This primarily affects the employee’s income tax calculation. But it also affects National Insurance Contributions, so there is an impact there on what employers have to pay.
In 2020, the government announced changes to the way the benefit in kind cash value for company cars would be calculated. The new system incentivises low emission vehicles by using a lower percentage of the vehicle’s list price. The more polluting a vehicle is, the higher the percentage of the list price added to the tax calculation.
The changes also included a gradual rise in the percentage calculation for all vehicles registered after April 2020. This year, the percentage rate for cars in all emissions categories has gone up by 1%.
Combined with the increase in employer’s NIC, based on an average list price of £25,000, this now means employers are looking at anything from four-figure NIC add-ons for diesel cars to as little as £100 for electric vehicles.