In the recent Autumn Statement, the Chancellor announced a significant change to National Insurance contributions for both employees and self-employed people.
Changes to National insurance contributions for employees
There will be a cut in the main rate of Employee’s National Insurance contributions from 6 January 2024. This will see Class 1 National insurance contributions reduced by 2%, from 12% to 10%, in a change set to benefit some 27 million employees.
This reduction will only apply to annual earnings between £12,570 and £50,270, meaning that the maximum saving is £754 a year. Average earners, bringing home £35,400, will be £450 better off. As the main rate will be reduced from 6 January 2024, employees will, unusually, see a benefit before the start of the next tax year.
The policy paper released by HM Treasury on these changes also highlighted further examples of the savings that this change will create.
How are these reductions in National insurance contributions effect some people’s annual gain?
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A senior nurse with 5 years of experience on £42,618 will receive an annual gain of £600.
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An average full-time nurse on £38,900 will receive an annual gain of over £520.
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An average police officer on £44,300 will receive an annual gain of over £630.
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A typical junior doctor on £63,000 will receive an annual gain of over £750.
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A cleaner working night shifts on £21,000 will receive a gain of £170.
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A typical self-employed plumber on £34,400 will receive an annual gain of £410.
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An average teacher on £44,300 will receive an annual gain of over £630.
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A hard-working family with 2 earners on an average earnings of £35,404 will be £900 better off.
NIC changes for self-employed individuals
The first change for the self-employed concerns the removal of Class 2 national insurance contributions. This means that self-employed people with profits above £12,570 will no longer be required to pay Class 2 national insurance contributions from 6 April 2024. Class 2 national insurance contributions are currently paid by the self-employed to qualify for contributory benefits such as the state pension.
This change effectively abolishes Class 2 national insurance contributions for some two million self-employed people. The self-employed benefitting from this change will continue to receive access to contributory benefits.
Those currently paying Class 2 national insurance contributions voluntarily will still be able to do so at the same rate. This includes those with profits under £6,725 (Small Profits Threshold) and others who pay Class 2 National insurance contributions voluntarily to access contributory benefits, including the State Pension. The weekly rate for making voluntary Class 2 National insurance contributions will be frozen at the current rate of £3.45 for 2024-25, rather than rising by CPI to £3.70. The Small Profits Threshold will also remain frozen at £6,725 for 2024-25.
Secondly, the Chancellor announced that the main rate of self-employed national Insurance, Class 4 national insurance contributions, on all earnings between £12,570 and £50,270 will be cut by 1%, from 9% to 8% from April 2024. This is worth £350 for the average self-employed person on £28,200.
Contact us
If you’re unsure about how these changes to national insurance contributions will affect you, please contact our specialist tax team today. Our team can help you maximise gains from reducing NIC contributions for employed and self-employed people.