Following the announcement in November 2023 that the Government was cutting NIC for employees (from 6 January 2024) and for the self-employed (from 6 April 2024) and in addition abolishing Class 2 NIC from 6 April 2024, the Chancellor went further today, announcing additional cuts to the main rates of NIC, as follows:
- Class 1 NIC for employees: is reduced by a further 2% to 8% with effect from 6 April 2024 (previously at 12% which fell to 10% from 6 January 2024).
- Class 4 NIC for the self-employed: is reduced by a further 2% with effect from 6 April 2024 to 6% (previously at 9% but intended to fall to 8% from 6 April 2024).
Class 1 NIC paid by employees is currently paid on earnings between £12,570 and £50,270. The NIC rate on earnings above £50,270 remains at 2%.
Class 4 NIC is due on self employed net profits between £12,570 and £50,270. Similar to Class 1 NIC, the contribution rate for net profits in excess of £50,270 remains at 2%.
Despite the abolition of Class 2 NIC, the self-employed will continue to receive access to contributory benefits such as state pension. Although it is import to note that:
- Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the state pension through a National Insurance credit without paying National Insurance contributions as they do currently; and
- Those with profits under £6,725, who choose to pay Class 2 voluntarily to get access to contributory benefits including the state pension, will continue to be able to do so. For 2024–24 the voluntary weekly contribution rate will be £3.45.
The stated policy objectives behind the cuts remain broadly the same: “The tax system should be fair, simple, and reward hard work”. Thereby allowing working families to keep as much of their money as possible and rewarding work as part of a long-term plan to grow the economy and encourage more people back into work.