Holiday time for startups

Employer’s National Insurance Contributions (NIC) are a burden for many businesses. Additional costs of 12.8% on top of gross salaries (rising to 13.8% from 6th April 2011) can make a substantial impact on the profitability of any business, particularly startups. The tax incentive effectively removes Employer NIC liability for 12 months, subject to certain conditions (see below).

The Emergency Budget (June 2010) announced a NIC “Holiday Scheme” for startup businesses operating in certain regions – the good news is that Northern Ireland is a qualifying region.

The scheme is limited to the first 10 employees, and is capped at £5,000 per employee. In practical terms, each employee could be paid c.£45,000p.a. without attracting any employer NIC.

Although it’s doubtful that many startups will fully utilise this relief, it is a welcome tax break for all startups in Northern Ireland.

As always, the devil is in the detail – here are a few points to bear in mind:

  • Sole traders, partnerships and companies all qualify, including property investment companies
  • Although announced in June 2010, the effective start date is 6th September 2010
  • The relief ceases 5th September 2013
  • Only employees who commenced working within the first 12 months of trading are eligible
  • The relief covers 12 months salary, per employee
  • Qualifying businesses must apply for this relief – it doesn’t automatically apply
  • Anti – avoidance measures are in place to prevent businesses closing and appearing under a different guise (within a 6 month period) to avail of this relief

The application of this relief is more cumbersome than expected, but with careful advance planning, it will undoubtedly help startups in Northern Ireland.

If you would like to find out more about the topics covered in this article, please contact Nigel Morrow.