From 6th January 2024, the main rate of National Insurance Contributions (NICs) paid by employees will change. There will also be changes to self employment contributions later in the year.
National Insurance 101
NICs are taken from people’s salary, or through self-employed self-assessments, from age 16 until state pension age. The amount paid is based on earned income and does not apply to money received from pensions. An additional contribution is also paid by employers.
There are a range of ‘classes’ that categorise how much each person pays, with Class 3 being voluntary – people can pay this to build up benefit entitlement, for example, those who are taking an extended break from work and still plan to claim state pension.
National Insurance is paid into a fund which is used for benefits, that the government has the ability to add to or use surplus for other expenditures.
Class 1 NIC Changes
The NICs paid by Class 1 employees is decreasing from 12% to 10%.
It is estimated that these changes will affect 27 million employees across the country. Workers will be paying 15% less on National Insurance – helping people to save money. Those who pay the basic-rate are estimated to gain £304 from these changes, with those who pay the additional rate gaining £707. This improves the standard of living, helping people to afford more, have more disposable income and put more capital into the economy.
Self-Employed NIC Changes
The NICs paid by Class 4 self-employed individuals is decreasing from 9% to 8% from 6th April 2024. Additionally on this date, self-employed people who currently pay the flat rate NICs charge for Class 2 – when their annual profit exceeds a threshold of £12,570 – will no longer need to pay this.
It is estimated that this change will affect 2 million people – with people gaining from £117 to £358 from these changes.
Effects of NIC Changes & How They Affect Public Finances
Research states that this change to NICs could reduce tax receipts by £9.4 billion.
Why NIC Changes?
These tax cuts may offset those that were increased in the 2021 Spring Budget and 2020 Autumn Budget, however the freeze on personal tax thresholds remains until 2028.
By freezing and decreasing tax allowances, taxpayers’ earnings rise and more of this income is taxed – also known as Fiscal Drag.
These changes also mean that personal taxes on the average UK salary will be lower than every other major economy.
James and Uzzell tailor our payroll services to the exact needs of our individual clients. If you need help with taxes for your business, get in touch with our team today.