This blog has looked in detail at how the corporation tax system in the UK might be altered to give financial support and incentive to all businesses or organisations for their social aims. However, the corporation tax system is not the only tax organisations have to pay, every employer in the UK also pays National Insurance.
My concept of Social Value Tax Credits did include a possible repayment of tax, limited by reference to the total PAYE and NI paid (reflecting existing legislation with R&D credits). However, it would be much better and more efficient if organisations that create social value did not have to pay the NI in the first place. Such a scheme would not attempt to measure the efficiency or performance of any particular social enterprise, but that might actually be a good thing.
Social Firms
I learn from my friends at Social Firms UK that they have considered the possibility of this very concept – some sort of waiver of Employer’s National Insurance contributions for businesses that employ disabled or disadvantaged people. This seems to me to be a very easy idea to implement and regulate – and many permutations exist:-
- Any business that employs at least 25% disabled or disadvantaged people doesn’t have to pay Employer’s NI on their salary
- Any business that employs at least 25% disabled or disadvantaged people doesn’t have to pay Employer’s NI on any salaries (that would prick up the ears of many businesses)
- Any business that employs at least 25% disabled or disadvantaged people doesn’t have to pay Employer’s NI on their salary and can keep the Income Tax deducted on the disabled or disadvantaged persons salary under PAYE too (this is not the place to discuss the Income Tax rates applicable to disabled or disadvantaged people)
No doubt some businesses will try to take advantage of the rules and exploit them. Its not difficult to think of a scheme where the idea of dropping all NI contributions incentivises businesses that employ disabled people but do not actually expect them to do any work. This is a partial victory I suppose (as they now have an income) but this is clearly a long way from ideal. This is why I favour only offering reductions to employers on the disabled or disadvantaged persons wages only and not across the board (although see below for wider socent impact).
Such reductions would also deeply incentivise all businesses to consider becoming Social Firms (those with at least 25% disabled or disadvantaged employees), or at least employing significantly larger numbers of such people. Especially if there were two thresholds; perhaps
- Businesses with >10% of their workforce disabled or disadvantaged stop paying Employer’s NI
- Businesses with >25% of their workforce disabled or disadvantaged also keep the PAYE Income Tax?
As with Social Value Tax Credits, social enterprises at the front line doing good work are being directly funded by Government in a reletively regulatory-hassle free way.
Discrimination
On the one hand, we wish disabled people to be treated equally with everybody else. On the other hand, Social Firms UK has data which suggests that it does cost more to run a social firm than a ‘normal’ business and that these businesses need financial support.
The ethics of this debate are also for another place. I believe that anything that encourages the employment of disabled or disadvantaged people has to be a good thing.
Wider Social Enterprise Sector
The above idea compensates businesses for employing disabled or disadvantaged people, an important but simplistic social aim. There are also many other social enterprise models with wider-ranging environmental or social aims that this would not cover. What might be done?
Any attempt to broaden the scheme would entail someone making a decision about whether or not that organisation in question is a social enterprise or not. This would require a definition of what a social enterprise is and whilst one or two exist, these do not have complete support in all quarters. This is not to say that this is a dead end, if a definition was set by Government then arguable similar NI or PAYE reliefs could be applied to qualifying enterprises.
All the above needs more thought. As usual do contact me if you’re interested in fleshing things out. alastairirvine@inspirate.org or follow me @InspirateCIC. I think I might consider VAT next. Zero-rating anyone?
