Starting a new business? Will you benefit from the National Insurance Holiday

HM Revenue and Customs have only announced limited details of the scheme but if you start a new business outside the London, East and South East regions in the three years from 23 June 2010 you should be entitled to a twelve month ‘holiday’ from Employers National Insurance contributions (currently at 12.8%) on your first ten employees. The amount of this is capped at £5,000 per employee. It could therefore be worth £50,000 to a new business.

We do not have full details of the scheme but the initial guidance issued by HMRC (http://www.hmrc.gov.uk/budget2010/nics-hol-qa-7076.htm) suggests that there will be rules to prevent abuse and these will restrict what constitutes a ‘new business’, who will qualify as an ‘employee’, which types of business will not qualify for the scheme (coal, agriculture, fisheries, agencies providing staff have all been mentioned).

The latest information we have is that the scheme should formally begin on 6 September 2010 (but new businesses commencing on or after 23 June will qualify from 6 September 2010).

If you are thinking of setting up a new business, you should be careful how much this holiday influences your decision. If your proposal and business plan show a viable business anyway, this could be a pleasant ‘bonus’ to help you early on. However, if your business plan shows that things are marginal, you should be careful allowing this to tip the balance, particularly whilst the detailed rules have not been announced.