As we approach the next Budget, there is mounting speculation that we may see a rise in Employer’s National Insurance Contributions (NICs). For some, this may seem like just a small rise to a tax on business under the new government, but for those of us who work with umbrella workers and small business owners, the implications could be far-reaching and, frankly, deeply concerning.
At first glance, an increase in Employer NICs may seem like a tax on businesses, but it is a tax on working people and for umbrella workers in particular, the reality is quite different. In the umbrella model, Employer NICs have to be deducted from the overall assignment rate. This means that when these contributions rise, they are deducted directly from the worker’s assignment rate and that reduces the amount available to them as gross pay. In other words, any increase in Employer NICs ultimately comes out of the pocket of the individual worker, reducing their take-home pay even though their agreed assignment rate remains unchanged.
This is particularly troubling because it turns what is branded as a tax on businesses into what is effectively a tax on working people. Umbrella workers are already navigating a complex system where pay and deductions are often hard to predict, and a rise in Employer NICs would make this even more difficult. For many of our member’s employees, this will feel like a direct hit, and it’s essential we understand the broader impact this could have on their livelihood.
An Unseen Danger: National Minimum Wage Risks
A more pressing concern is that a rise in Employer NICs could, in theory, push some umbrella workers’ gross pay dangerously close to – or even below – the National Minimum Wage (NMW). For those on the lower end of the wage scale, this could create serious compliance issues for employers.
It’s critical for umbrella companies, end-users and employment businesses alike to understand that this change could have knock-on effects. Compliance with NMW regulations must remain a priority, and we must be proactive in ensuring no worker is left in a precarious position due to changes outside of their control.It will sometimes be necessary for employment businesses to increase the assignment rate paid for a worker.
Divvie Tax rise – an Impact on Small Business Owners and Contractors
While umbrella workers would bear the brunt of a rise in Employer NICs, small business owners and contractors could face additional challenges if the government proceeds with a rumoured increase in dividend tax. Many small business owners pay themselves through dividends, and an increase in taxation here would further reduce the financial flexibility of hundreds of thousands of people across the UK.
Small businesses are the backbone of our economy. They create jobs, drive innovation, and fuel growth. They also provide essential services to larger firms and are a critical component of the supply chain across multiple sectors. A tax increase or threshold change that diminishes their earnings, especially in a challenging post-pandemic economic environment, could dampen entrepreneurship and slow economic recovery.
FCSA’s Position: Advocating for Fairness
At the FCSA, we will continue to champion the rights of umbrella workers, contractors, and small business owners. It’s vital that the government understands the full consequences of its fiscal decisions and recognises the impact these changes will have on everyday workers and small businesses.
We strongly believe that an increase in Employer NICs is a tax on working people, not just businesses, and we will be voicing this position to policymakers in the run-up to the Budget. Similarly, we will be making the case that a rise in dividend tax would unfairly penalise small business owners and pensioners alike.
In the meantime, we urge our members to remain vigilant. If Employer NICs do rise, it’s essential to review your current pay structures to ensure compliance with NMW regulations, and we’ll be here to support you through any necessary changes.
Looking Ahead
As always, FCSA will remain at the forefront of these discussions, advocating for policies that support fair treatment and financial stability for all. The coming months could bring significant changes, but together, we can navigate these challenges and ensure the voice of freelancers, contractors, and small businesses is heard.