BUSINESSES in the region face a tough year, as higher employment costs start to kick in this month, warn tax experts.

Higher National Insurance (NI) contributions for employers and employees will lead to a squeeze on profits, according to the Institute of Chartered Accountants' tax faculty.

Peter Hogan, tax faculty representative of the Northern Society of Chartered Accountants, said the increase in the cost of employing people, together with lower take-home pay for employees, could cause serious problems for many firms. "The increase in employers' NI contributions represents a rise of more than eight per cent in the current NI bill and this will have a direct profitability," said Mr Hogan.

"Businesses will be under pressure to increase wages, as employees see their net earnings reduced by higher NI contributions."

Meanwhile, some workers might also seek bigger pay claims, as above-inflation rises in council tax bills put further strain on family finances, added Mr Hogan, a partner in Clive Owen & Co, Darlington.