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What does the national insurance increase mean for you and your pharmacy?

Contractors should plan now how to tackle the UK-wide 1.25% NIC rise commencing in April 2022, a pharmacy accountant has advised

On September 7, the Prime Minister announced an increase in national insurance contributions (NICs) to help pay for social care by raising an additional £36 billion for the NHS over three years.

This will not be welcome news for many business owners that have been hit hard by the effects of COVID-19 and are barely managing to stay afloat due to rising costs.

Community pharmacies in England are already expected to repay the COVID-19 advance funding received from April 2020 to July 2020 over six months from October, and therefore their cashflow will already be facing a big squeeze from next month.

Employers currently pay Class 1 NICs based on how much an employee earns at a rate of 13.8% (15.05% from 01 April 2022) on earnings above £8,844, while employees pay 12% (13.25% from 01 April 2022) on earnings between £9,565 and £50,268. A flat rate of 2% (3.25% from 01 April 2022) is applicable for earnings above £50,270 for employees.

As such, an employee earning £30,000 per annum will cost the employer £265 extra and one earning £65,000 will cost £702 extra in employer NICs from April 2022. At the same time, it will respectively cost the employee £255 and £693 in additional employee NICs.

This means that employees are now faced with a lower disposable income and employers face higher employment costs. The resultant increase in annual staffing costs will range from a few hundred to a few thousand pounds per annum depending on the size of the team employed. Prospective employees and self-employed locum pharmacists will be seeking higher salaries or rates to maintain their current level of disposable income due to rising prices of goods and services.

Contractors looking to hire additional staff or expand operations will now be faced with a dilemma on whether to go ahead with recruitment or rely on locum pharmacists operating through personal service companies if they do not sit within the IR35 rules. This is even trickier for medium and large business owners as the onus for determining the IR35 status of such locum pharmacists rests on those businesses. The worry for community pharmacy businesses is to be able to secure skills and experience at an affordable price while still being profitable.

Corporation tax rates are also set to increase for companies with profits over £50,000 from April 2023, and it will be important to plan ahead as to how community pharmacies can maintain an optimum staffing level and still remain profitable.

The first step for contractors would be to understand their financial position through speaking to their professional advisors and accountants.

Vinku Shah is a manager of the pharmacy team at Silver Levene LLP


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