Smallest firms hit by higher pension costs

May 2018

Startups and the smallest businesses are having to absorb higher pension costs as the new tax year gets under way. 

The Federation of Small Businesses (FSB) warns that the doubling of minimum employer contributions into workplace pensions from 6 April 2018 will “hit the very smallest firms and startups the hardest”. 

Firms in labour-intensive industries – such as retail, childcare and construction – will reportedly feel the impact most acutely. 

The FSB claims these sectors are already beset by high inflation and skills shortages, with further auto-enrolment increases due to come into force next year.

From 6 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.

However, the FSB welcomed the decision by chancellor Philip Hammond to freeze the VAT registration threshold at £85,000 for 2018/19.

Mike Cherry, chairman of the FSB, said: 

“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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