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The Rising Cost of Doing Business

Businesses are facing a perfect storm of financial pressures. Inflation is already at its highest level for 30 years, with the Bank of England warning that it is likely to make further increases in coming months. This means many firms are shouldering much higherthan-anticipated supply prices along with energy, fuel and transport costs.

In a response to inflationary pressure, the Bank of England has raised the base interest rate three times in as many months. This of course makes borrowing money more costly. In addition, many businesses that took out government loans during the pandemic, such as Bounce Back Loans (BBLs) and Coronavirus Business Interruption Loan Scheme (CBILS), will now be making monthly repayments.

And that’s not all. From April 2022 changes in legislation have come into effect that increase the cost of employment.

National Insurance Contributions (NICs) Increases

NICs are a tax paid by employees and the selfemployed on their earnings, and by employers on the earnings of those they employ. In the autumn budget, Chancellor Sunak announced that there would be a temporary hike in NICs to fund an overhaul of the Health and Social Care system. You can read more about the levy here.

From April 2022, the employer NIC rate rose from 13.8% to 15.05% on the earnings each employee receives above the NICs threshold (£9,100 from April 2022). This means that the cost to a business of every employee earning over the threshold will be higher.

For example: one full time employee earning £24,000 in the 2021/22 tax year cost you £2,092.08 in employer NICs per annum. From April this increased by £150.37 to £2,242.45. You can see how your total contributions bill could rise steeply depending on the number of staff you have.

Despite repeated calls for the increase to be axed, the Chancellor confirmed in his spring statement that it would go ahead as planned. He did announce a rise in the threshold at which employees and the self-employed would start paying NICs. However, the threshold for employers will remain the same; the only concession to businesses was an increase in Employers Allowance from  £4,000 to £5,000 for those who meet the eligibility criteria.

There is potential to reduce both employee and employer contributions via a salary sacrifice scheme. If this is something that you would like to know more about then please contact GWA’s  dedicated payroll team.

National Minimum Wage Increases

The effect of the rise in employer NICs is compounded by a concurrent rise in the National Minimum Wage (NMW). From 1 April 2022 the new rates are:

  • National Living Wage (23+) increased from £8.91 to £9.50
  • National Minimum Wage (21-22) increased from £8.36 to £9.18
  • National Minimum Wage (18-20) increased from £6.56 to £6.83
  • National Minimum Wage (16-17) increased from £4.62 to £4.81
  • Apprenticeship Wage increased from £4.30 to £4.81

It is a legal requirement for all employers to pay the NMW at the appropriate rate. Once again, further information on the changes is available here on the news section of our website.

Queen’s Platinum Jubilee Bank Holiday

Earlier this year the Department for Digital, Culture, Media & Sport announced an additional Bank Holiday to celebrate the Queen’s 70th anniversary as monarch. The May Bank holiday will be moved to Thursday 2 June and the additional holiday will be on Friday 3 June.

Although this applies to the whole of the UK, whether an employee has the right to have the time off depends on the wording of their Terms of Engagement and if they normally work on Bank Holidays.

For example: if an employee’s contract says they are entitled to 20 days plus Bank Holidays, they will be entitled to the additional Platinum Jubilee Bank Holiday. However, if an employee’s contract states that they are entitled to 28 days of holidays inclusive of Bank Holidays, they are not legally entitled to the extra holiday. This can however be given at the employer’s discretion.

The timing of these employment legislation changes will no doubt be very challenging for many firms and cause an inevitable squeeze on cash flow. Speaking to a financial expert to get an overview of your accounts and making sure you can afford the additional costs is probably a good idea.

At GWA, we’re here to help. We can give advice on cash flow and all aspects of payroll and HR. Please get in touch if you require further assistance.

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News and Events

Abolition of the Furnished Holiday Lettings Regime

The favourable tax regime for Furnished Holiday Lettings (FHLs) was first introduced in 1984. Forty years later, in the Spring 2024 Budget the then Chancellor of the Exchequer, Jeremy Hunt announced its abolition from 6 April 2025.

Employers’ National Insurance Contributions (NICs)

The biggest revenue raiser in the Budget was the changes to NICs. The increase in Employers’ NICs (increasing from 13.8% to 15% from April 2025) grabbed many of the headlines. What has been largely overlooked is the reduction in “Secondary Threshold” from £9,100 to £5,000. Allied to the increase in the National Living Wage, the changes will particularly affect those in the care, retail, hospitality and cleaning/maintenance sectors.

Inheritance Tax

It is difficult to recollect a more seismic Budget in recent times. The last major changes to Inheritance Tax were made in 2006, but mainly in relation to Trusts. There was an expectation that Inheritance Tax reliefs would be reformed, most likely for landlords who lease out land which qualifies for Agricultural Property Relief (APR). It was considered much less likely that Business Property Relief (BPR) would be reformed, and there was a distinct lack of speculation in this regard.

End of Year Tax Planning

Wednesday 5 April 2025 sees the end of the current Tax Year. Following the new Chancellor's plans to continue to freeze
and in some cases reduce tax-free allowances; it is more important than ever to make the most of some timely tax planning.