Businesses will be forced to pay thousands more a year in National Insurance for each worker receiving national minimum wage rises. Companies will be pulled into a ‘fiscal drag’ and pay more in NI contributions and wages for staff on the National Living Wage and National Minimum Wage, which rise on April 1. This is because Chancellor Jeremy Hunt did not change the NI contribution percentage of 13.
But while there may be an NI cut, the threshold for tax payments has not increased and means more will be paid in tax. This is known as a ‘stealth tax’ or ‘fiscal drag’ and can apply to businesses and workers. Following the changes made in the Spring Budget, an 18 to 20 year-old earning £16,000 will end up paying £530 more in tax a year on an additional £2,650 of earnings.
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