The new National Insurance Contributions Bill will waive the first £2,000 of National Insurance contributions for all companies, making it easier for them to take on new staff.
The move was first announced by George Osborne in the Budget earlier this year, as part of his plans to build a “aspiration nation” that supports small business and entrepreneurs.
Around 450,000 small businesses will not pay any National Insurance contributions. The tax is paid by both employers and staff, and they go towards paying for benefits such as the state pension.
The Government is hoping the “employment allowance” will encourage small businesses to take on extra workers, especially those that are starting up.
The changes will take effect in April next year and apply to charities and sports clubs as well as businesses.
As part of the Coalition’s wider crackdown on avoidance, the Bill will also contain measures to stop people using “abusive tax schemes” to get around paying their fair share to the Treasury.
It will extend the “general anti-abuse rule” to the employment tax and prevent the use of offshore payroll companies, which can be used to help companies avoid paying National Insurance.
Commenting on the Queen’s Speech, John Longworth, Director General of the British Chambers of Commerce (BCC) said: “On balance, businesses will welcome the limited package of legislation announced in the Queen’s Speech. Ministers are right to focus on measures that can help boost growth, and seem to have gotten the message that when it comes to new legislation, less is more.
“The key for business is delivering on the government’s existing commitments, whether on infrastructure, energy, or education and training. Businesses are impatient to see real progress and real benefit emerging on the ground, not just the completion of Westminster and Whitehall processes.”
He added: “The new Employment Allowance will help our smallest companies take on staff, and will give many businesses an important boost of confidence. In particular, this measure will create a strong incentive for a new or start-up business to hire its first employee.”
Also commenting on the speech John Cridland, CBI Director-General, said: “Business does not need a raft of new bills at this stage of a Parliament. You cannot legislate your way to economic growth – laws are only ever one piece of the jigsaw.
“With only two years to go until the next election, business needs delivery on the ground not time-consuming new bills that will have little or no impact before 2015.
“Ministers must focus on driving up exports; getting finance to firms; cutting costs and red tape; and boosting the construction industry, through housing.”