During the 2023 Autumn Statement, Chancellor Jeremy Hunt announced a number of changes to National Insurance (NI) for both the self-employed and the employed.
Employed Individuals
From 6 January 2024, over 29 million working people will see a tax cut due to the reduction of the Class 1 Employees NI Contributions. For employees earning at least £12,570, for the band of income from £12,570 to £50,268 the current rate of NI is 12%, but this will be cut to 10%. Employees will continue to pay NI on their earnings in excess of £50,268 at a rate of 2%.
This means the average worker on £35,400 will receive a tax cut in 2024-25 of over £450. The 10% rate of NI combined with a 20% basic rate of income tax will mean a combined basic rate of tax of 30% which is the lowest in the UK since the 1980s.
Despite this fall in the main rate of NI Contributions, the government are sticking with their previous announcement to freeze all Income Tax and NI bands and thresholds at their current rates until April 2028. Therefore, any form of pay rise could still result in individuals being dragged in to a higher tax bracket resulting in a greater proportion of their income being taxed than they may have expected.
Self-Employed Individuals
The government is also cutting taxes for the self-employed from 6 April 2024. These cuts will benefit around 2 million people and result in the average self-employed person saving £350 in 2024-25.
Firstly, the rate of Class 4 NI which is paid on any self-employment profits between £12,570 and £50,270 will be reduced from 9% to 8%. Although the rates are falling, the £12,570 threshold at which people start paying Class 4 NI will remain at this level until April 2028 as announced in Spring 2021. Similar to Class 1, the freezing of thresholds may mean those with increasing profits are required to pay Class 4 where they may not have done otherwise, and may not have expected to do so purely as a result of inflationary increases.
Furthermore, Class 2 NI which is currently compulsory for those with profits over £12,570 and is paid at £3.45 per week (£179.40 per year) will be abolished. Although this is being removed, individuals will continue to receive access to contributory benefits, such as the State Pension.
Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits through a National Insurance credit without paying NI, which is in line with current rules.
For those with profits under £6,725 and others who pay Class 2 NI voluntarily in order to get access to contributory benefits, they will still be able to do so. The Government announced that the weekly rate of £3.45 and the small profits threshold of £6,725 for voluntary Class 2 National Insurance will remain at this rate throughout 2024-25. It is not clear at this stage what will happen with voluntary contributions after April 2025 – whether Class 2 will continue on a voluntary basis or whether individuals will have to instead pay the higher rate Class 3 contributions.
If you have any questions for our Tax experts as a result of this Autumn Statement, please contact us on 01242 776000 or tax@randall-payne.co.uk.
