Small businesses must tackle rising pension cost

Small businesses will face profound financial difficulties if they do not receive government support to assist with rising pension contributions for staff, a leading trade body has warned.

The Federation of Small Businesses has said employers in retail, construction and childcare will suffer most from recent pension contribution changes.

Effective from 6 April 2018, employers needed to double pension contributions from 1% to 2% of an employee’s salary, while employees must put in 3%.

However the situation could yet worsen, as from April 2019, those figures will rise to 3% and 5% respectively.

The FSB has suggested that the 1.1 million employers in Britain with 10 staff or fewer are being disproportionately affected

Chair of the trade body, Mike Cherry revealed that four in ten firms list labour costs as their biggest challenge, with those costs the most commonly listed cause of rising expenditure.

He has suggested that the government could increase the employment allowance, a tax incentive designed to reduce national insurance outlays, to support small firms.

The FSB has also warned that many firms lack the knowledge and experience of dealing with all of the relevant paperwork, which means some miss out on incentives that they are entitled to.

According to Bibby Financial Services, 16% of small firms fear that rising pension contributions could put pressure on their operations, while 14% said they would suspend recruitment as a result.

For firms that struggling to raise finance, a range of alternative finance options exist, that can help to overcome bad debt or to support expansion.

Businesses should seek advice and guidance if they are unsure which route to take, while an independent business review may reveal aspects of a business that can be streamlined to boost performance.

The key is to act quickly at the first signs of financial difficulty, as this will ultimately increase the types of solutions that are available to a company.


By Phil Smith


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