Labour shortages can create challenges, regardless of the industry sector you operate in, and managing your costs while trying to maintain service quality and customer relations can be a difficult balancing act.
In some instances, investing in technology to increase efficiency can be a solution to the problem.
If this is something you resonate with, it is worth bearing in mind that the Annual Investment Allowance (AIA) allows you to deduct the full cost of qualifying equipment, such as IT systems and machinery, from your taxable profits.
This includes investments in automation tools, such as self-service kiosks and advanced ordering systems, which can reduce reliance on labour for repetitive tasks.
Taking advantage of the AIA means you can potentially reduce your Corporation Tax bill while also enhancing operational efficiency.
For 2024, the AIA has been set at £1 million, providing substantial room for investments that may significantly reduce your tax liability and reliance on manual labour.
Utilising apprenticeships and employment incentives
To address staffing needs without incurring prohibitive costs, you may have already put some thought into hiring apprentices.
Apprenticeships can provide an effective route to onboard new staff while benefiting from Government incentives.
Employers who hire apprentices under 25 years of age may be eligible for grants of up to £1,000, and the Apprenticeship Levy offers an opportunity to access Government funding for training.
The cost of onboarding and training apprentices is lower compared to hiring more experienced staff, and by shaping apprentices’ skills to meet your business needs, you can help fill existing skills gaps.
The additional funding for apprenticeship training also offers long-term benefits to both the business and the workforce.
From a payroll perspective, remember that apprentices must be paid the appropriate minimum wage as follows:
| 21+ (NLW) | 18-20 | Under 18 | Apprentice* | |
| From 1 April 2024 – 31 March 2025 | £11.44 | £8.60 | £6.40 | £6.40 |
*The Apprentice rate applies only if the individual is under 19 years of age, or over 19 but in the first year of their apprenticeship. Once the first year of their apprenticeship has been completed, they are entitled to receive the NMW for their age bracket.
Implementing tax-free employee benefits to improve retention
In a competitive labour market, retaining skilled staff is crucial. To incentivise current employees, businesses can make use of tax-free benefits to enhance job satisfaction.
The trivial benefits exemption allows employers to provide benefits of up to £50 per employee without incurring tax or National Insurance.
While seemingly small, regular employee rewards under this exemption can foster a sense of recognition and appreciation.
Other options include the cycle-to-work scheme, which allows employees to purchase bicycles and equipment without tax implications.
Given the increasing costs of transportation, this can be a valuable perk that also aligns with environmental and health considerations, making it a beneficial offering for both employer and employee.
Hiring overseas workers: Financial and tax implications
Hiring from abroad can help address your labour shortages, but it also introduces additional considerations regarding tax compliance and payroll.
As an employer, you must ensure that all legal requirements for work permits and visas are met, and you should be aware of the payroll obligations involved in hiring non-UK workers, including ensuring correct PAYE and National Insurance contributions are deducted from pay.
There are also specific allowances for supporting new hires from overseas. For instance, the relocation allowance allows employers to provide up to £8,000 towards relocation costs without it being subject to tax or National Insurance.
Offering suchsupport can make your job offers more attractive while still being tax efficient.
Using agency workers: VAT and cash flow considerations
Temporary workers can provide much-needed support when labour is scarce, though it is important to be aware of the VAT implications associated with agency fees.
VAT on labour costs can increase the overall cost of hiring agency workers, and while this VAT can often be reclaimed if your business is VAT-registered, it may still impact cash flow.
You should ensure that accounting systems are set up to track VAT on agency fees accurately and that you have plans in place to manage these costs effectively. Alternatively, your accountant should be able to help you manage this.
For businesses with limited cash reserves, proactively managing these payments can help maintain financial stability during times of labour shortages.
Remember to use the Employment Allowance!
If it is not already, your business should be making the most of the Employment Allowance. The Employment Allowance enables eligible employers to reduce their National Insurance contributions by up to £5,000 each year.
This can be particularly helpful when seeking to maintain employment levels or take on additional temporary staff without bearing the full cost of National Insurance.
The allowance can also be an effective way to manage overheads while maintaining or even expanding your workforce during challenging times.
If you would like more information or guidance on this issue, please get in touch with our team.
