In the 2023 Autumn Statement, the Chancellor delivered on rumours with a package of reductions in national insurance for the UK’s workforce. Jeremy Hunt continues to back his previous statements and further clarified his view that to improve the economy, job vacancies must be filled, and for job vacancies to be filled, employment taxes should be more straightforward and more fair. The Chancellor aims to achieve this by the eventual eradication of national insurance contributions (NICs), significant drivers of the aforementioned complexities and disparities in the employed vs self-employed tax systems.
Employed
- Class 1 primary (employees)
Last Autumn Statement’s cut to national insurance for employed workers, from 12% to 10% on earnings between £12,570 and the upper earnings limit, has been in place since 6 January 2024. However, this has not lasted long since, following the Chancellor’s announcement at the Spring Budget, these NICs will be cut be a further 2% to 8% from 6 April 2024.
- Class 1 secondary (employers)
No measures were introduced to reduce the national insurance cost for employers, but the now multiple changes to NIC rates throughout the current tax year will surely increase the administrative burden of the payroll team in an area that is already highly time sensitive since the advent of real time information.
Self employed
- Class 2
Class 2 NIC is currently paid at a weekly rate of £3.45, for those eligible to pay. For an individual, class 2 is usually considered to be the most important, because full contributions will be a qualifying year to provide access to certain benefits, including state pension.
The Spring Budget made no changes to the Chancellor’s previous announcement that class 2 NIC will be ‘abolished’ from 6 April 2024, saving £176.80 per annum at current rates, or £192.40, had it been increased as planned.
However, it will still exist for certain groups. Currently, where self-employed people have an annual profit less than £6,725, then no class 2 NIC is due, but they also do not get a qualifying year for state benefits unless they voluntarily pay class 2 NIC (despite it being abolished).
Fortunately, for those who will still pay, the rate remains frozen at £3.45, rather than being uprated in line with the consumer price index.
- Class 4
At present, self-employed individuals generally pay two types of national insurance (NIC), being ‘class 2’ and ‘class 4’.
Class 4 NIC is assessed annually on profits at a rate of 9% above £12,570, falling to 2% above £50,270.
While the thresholds at which the rates are calculated have been frozen, the Chancellor announced that class 4 NIC will fall to 6% on profits between £12,570 and £50,270, from 6 April 2024. This is a further reduction of 2% from last year’s Autumn Statement in which the class 4 NIC rate cut from 9% to 8% was initially announced.
The above changes would save an average self-employed person £650 per year based on income of £28,000.
For further Spring Budget 2024 analysis please click here.
