Employer NI rise may have unforeseen consequences

Eleanor Meredith, chair of CIOT’s Employment Taxes Committee, said: 

“Employers will not welcome the additional cost of this national insurance (NI) increase, and some of them may respond in ways the government did not intend.  

“The increase extends the differential in the burden of tax and NI borne by those in employment compared to those engaged as self-employed. 

“The higher employers’ NI goes, the greater the likelihood employers may seek ways to mitigate or absorb the burden, which could include potential alternative arrangements to taking on people as employees. Alternatives could include outsourcing or offshoring services, and reducing the numbers of employees. 

“While employers must pay employer NI on their employees’ earnings, no employer NI is due where someone is genuinely self-employed. 

“We are concerned that the increase in employers’ NI could lead to an increase in ‘false self-employment’, where businesses trying to save money turn to arrangements where the worker is not directly employed by them, without necessarily appreciating the rules and risks of such arrangements. 

“A worker’s employment status for tax is notoriously difficult to judge, as we have seen from recent complex litigation involving some TV presenters. HMRC will need to be sufficiently resourced to tackle potential increases in ‘false self-employment’.” 

Eleanor Meredith added: 

“While the government is already consulting to ‘Make work pay’, we urge them to also work with stakeholders, businesses, unions and individuals to agree a sustainable solution to how earnings (whether from employment or self-employment, or via a personal service company) should be taxed.”