In the Autumn Statement 2023, the Chancellor announced that National Insurance Contributions (NIC) would be cut for self-employed taxpayers and employees. This was undoubtedly one of the biggest shakeups and unsurprisingly made headline news. Why? Because it meant not only that primary Class 1 and Class 4 NIC would be reduced but also that compulsory Class 2 NIC would be removed altogether.
NIC Will Be Reduced For Employed & Self-Employed Taxpayers
National Insurance Contributions are designed to help fund state benefits, such as the state pension, the NHS and support for those unable to earn an income. It is a fundamental component of the UK welfare system, meaning keeping in the loop with the latest changes is vital. Learn more about the most recent update below:
What Are The Latest Changes To NIC?
The changes to NIC will be split into two and will come into effect on different dates:
Changes For Employees
Start date: 6th of January 2024
First, the primary Class 1 NIC rate that employees pay on earnings between £12,570 and £50,270 per year will be cut from 12% to 10%. This will start from the 6th of January 2024 rather than the beginning of the next tax year. Employers must ensure that they have updated their payroll software before the January pay run so that the correct rate of Class 1 NIC is deducted from their employees.
Changes For The Self-Employed
Start date: 6th of April 2024
Secondly, there are the changes to self-employed taxpayer rates. The main rate of Class 4 NIC will be reduced by 1% from 9% to 8%, and this will come into effect on the 6th of April 2024.
Not only this, but self-employed traders who earn a profit over £12,570 will no longer need to pay Class 2 NIC. They will, however, continue to receive access to contributory benefits, including the state pension. Those with profits between £6,725 and £12,570 will continue on this basis. Traders with profits under £6,725 will also still be able to voluntarily pay Class 2 NIC to protect their entitlement to contributory benefits.
How Much Will These Changes Save Taxpayers?
According to the Chancellor, it is thought that these reductions to NIC will save the average self-employed taxpayer £350 per year and £450 for an average employee.
As always, if you have any questions about how these NIC changes will impact you or are an employer that needs help preparing, please do not hesitate to contact our team. We would happily arrange a consultation to discuss your circumstances in more detail.