Budget 2013: National Insurance cut Osborne’s big gift

Employers’ NICs have often been described as a “tax on jobs”, particularly by the Tories when the last Labour government announced plans to increase employer payments by 1 per cent.

The Chancellor said that as a result of the new allowance, every business will be able to employ one worker on a salary of £22,000 a year, or four adults on minimum wage without paying extra NICs.

Peter Young, tax partner at Johnston Carmichael, affirmed that the allowance represented a “real cut” of NICs for all businesses, albeit they would have to wait to feel the benefit.

He said: “The employment allowance won’t come in until next year. All of the measures he has introduced today don’t come in for another year, possibly two years. It is a Budget for tomorrow, not for today.”

But when it eventually comes, it will work as a benefit, especially for small firms, and will allow them to hire either a first employee, or a higher-skilled employee.

He said: “It will be welcome for smaller businesses – £2,000 is a lot of money for a small business that is struggling. It could make a difference to taking someone on and not taking someone one.

“You don’t pay NI until you get you to about £7,500 in earnings. It could enable companies to take on a more highly-skilled person,” he said.

The Forum of Private Business called the NIC break a “real boon for smaller employers”.

“We’ve been calling for a scheme like this for years now, so our only disappointment with this is that it’s 12 months away, and that’s a mighty long way off,” said the forum’s head of policy, Alex Jackman.

“While business will love the concept, the fact that no financial benefits will be felt until April 2014 somewhat takes the shine off it. Still, it will allow for businesses to prepare and plan ahead.

“The bottom line here, though, is that this initiative will have a double function, that is to either incentivise employers to take on more staff, or to take the saving and boost their profitability. For many small firms who’ve been operating on extremely small margins the latter would be welcome relief.”

Colin Borland, the Federation of Small Businesses’ head of external affairs in Scotland said: “Many of the measures the Chancellor outlined show that he understands the potential of the UK’s smallest businesses. The Chancellor’s decision to help the smallest employers, and prospective employers, should not only benefit these businesses but will give a welcome boost to the Scottish job market in 2014.”

The scheme widens out a plan announced in 2010 to establish an NIC holiday for new businesses set up outside of the south-east and east of England. Companies would benefit from up to £5,000 for the first ten employees they hired in their first year of business. In November, the Treasury admitted the scheme had not worked.

Despite the cut, the Office for Budget Responsibility estimates that income from NICs will rise by £5.3 billion in 2015-6. Mr Young explained the windfall came as a result of changes to the state pension. “The NIC take will go up as a consequence of people not contracting out of the second state pension.”

With 400,000 extra people qualifying for single-tier state pension, the Treasury will receive an extra £5.5bn as a result of the abolition of contracting out.