National Insurance will tax groups

Tight business margins at design consultancies will be squeezed further by the surprise 1 per cent increase in National Insurance Contributions by employers announced in the Budget, say industry analysts.

Economists are calling the NIC increase a ‘tax on jobs’ and The Forum for Private Business has estimated companies employing ten people will pay an extra £2361, while those with 100 staff face an additional bill of £23 607.

Amanda Merron, partner at accountant Willott Kingston Smith, says, ‘Salary costs make up 60-65 per cent of design business overheads. Another penny in the pound will affect design consultancies because they are people-intensive businesses.

‘NIC is going to be a pain. It’s a bit of a blow,’ she adds.

Design Business Association chief executive Ian Rowland-Hill says, ‘Design consultancies are not having the happiest of times at the moment. The NIC changes are going to be tough. It’s early days [and] too soon to take stock, [but] clearly, it’s not a good time to take on additional costs.’

Some of the cost may be offset for smaller businesses by the streamlining of VAT regulations and the reduction in corporation tax (down from 20 per cent to 19 per cent) for firms with profits between £50 000 and £300 000.

Changes to Capital Gains Tax, which mean companies can sell subsidiaries and affiliates without paying tax on the gain, could also herald demerger and merger activity among design groups, says Merron.

A new regime for intellectual property including brands and designs, which makes expenditure on such assets tax-deductible against profits, could lead to more changes in brand ownership.

Merron says, ‘Potentially, there might be more brands moving around, as the likes of Unilever and Procter &Gamble hoover up other brands, [and] that would affect design rosters.’