The Federation of Small Businesses (FSB) has warned that the doubling of minimum employer contributions into workplace pensions will “hit the very smallest firms and startups the hardest.”

The new contribution rules come into effect at the beginning of the new tax year, the 6 of April 2018 and saw auto-enrolment saving schemes rise from 1% of pensionable pay to 2%.

Companies within labour-intensive industries – such as retail, childcare and construction – are expected to feel the impact most acutely. The FSB claims this is because these sectors are already beset by high inflation and skills shortages, with further auto-enrolment increases due to come into force next year.

From the 6 of April 2019, employer contributions will rise to 3% and the total amount going into workplace pensions is expected to pass £17 billion around the same time.

A survey of over 1,000 SMEs which was carried out by the financial services firm, Bibby confirms these concerns. 16% of companies who were surveyed said that they believe the cost of increased pension contributions will put a strain on their business and 14% said they will have to put a freeze on recruitment because of it.

Mike Cherry, chairman of the FSB commented:

“Small business owners want to see employees save, but more needs to be done to help firms absorb high labour costs.”

In light of this, the FSB has welcomed the decision by chancellor Philip Hammond to freeze the VAT registration threshold at £85,000 for 2018/19.

Cherry continued:

“VAT is the most time-consuming tax for our members to manage, with registered small firms spending a working week every year complying with VAT obligations on average. There is an issue with firms approaching the £85,000 threshold and putting the brakes on. Resolving that lies in a smoothing mechanism though, not in suddenly dragging more firms into the VAT regime.”


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If you would like more information about workplace pensions or you would like to enquire about our VAT services, please don’t hesitate to contact PKB Accountants and we will be more than happy to help.



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