PAYE umbrella contractors hoping that the Government’s NIC holiday scheme may encourage smaller businesses to provide more placement opportunities may be disappointed to hear that only 7,000 of an estimated 400,000 SMEs have made use of the initiative.

Last week David Cameron was forced to admit that only a paltry 1.8% of the eligible SMEs had so far enrolled. Under the scheme, employers in specific areas of the country would be permitted to forego NICs for the first ten employees they hired.

The failure of the initiative has raised questions about the Government’s growth strategy, with Mr Miliband wasting no time in declaring that it wasn’t working. Beyond the political Punch and Judy spectacle, however, other industry voices are expressing the view that the National Insurance Holiday was unlikely to generate the growth the Government had predicted.

The Government is in fact aware of research that reveals that NICs, while not irrelevant, are not the primary concern of SMEs – red tape is. Specifically, it is the red tape surrounding employment that is deterring many prospective employers from hiring new staff. For example, the recently implemented Agency Workers Regulations are estimated to cost UK companies up to £2 billion in compliance activity.

Many employers remain confused about the legislation, which was implemented in full despite numerous pleas from industry bodies for amendments, deferrals and reviews. Some fear that the confusion may adversely affect contractors working for umbrella companies, although organisations such as the REC and PCG insist that this need not be the case.

Despite the Government’s Red Tape Challenge, the Forum for Private Business has revealed that compliance activity is actually rising.

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